Equity Bank six months profit up 9 percent to Sh12 billion

Equity Bank’s #ticker:EQTY half-year net profit increased nine percent to Sh12 billion as the lender cut back its loans to the Treasury in favour of the mass market.

The bank’s loan book expanded 17 percent (nearly Sh46 billion) to Sh320.9 billion in the six months ended June, indicating its aggressive return to small and medium enterprises (SMEs) lending.

Loans to the Treasury increased at a slower pace of 13 percent to Sh179.6 billion in the period.

"Why would we invest in government when it is giving eight percent if you can get 13 percent from the market. That is why we have changed policy," said Equity Bank CEO James Mwangi shortly after Thursday’s results announcement.

Mass lending

The shift back to mass lending earned the bank a nine percent lift in interest income to Sh27.7 billion in the first half period.

Mr Mwangi said the lender wants to grow lending to agriculture tenfold on a partnership with Twiga Foods.

The bank has also set aside Sh20bn for asset-financing in the health sector.
Mobile lending and processing of loans through the bank’s extensive network of agents is also part of Equity’s growth plans.

“From September agents will use computers or phones and help you apply for loans,” said Mr Mwangi.

The health financing model is part of the Equity Afya medical programme that has set a target to put up 100 new facilities in the next 12 months and 1,000 in five years.

The bank wants to finance existing outlets to upgrade equipment and set up new outlets through partnership with the government’s universal healthcare plan.

Mr Mwangi said the move back to mass lending is informed by the low returns earned from government papers after yields of the treasuries slumped following over-subscription by lenders.

Strategic decision

The bank in 2017 announced it had made a strategic decision to abandon SMEs as it moved away from unsecured loans following the regulatory cap on cost of loans that had made it difficult for banks to price risk appropriately.

The lender says it will now bank on the guarantees offered by donors led by the MasterCard Foundation to go back to the mass market aggressively.

Equity’s non-performing loans (NPLs) went up from Sh24.4 billion to Sh29.2 billion, standing at 8.6 percent of the total loan book, which is lower than industry figure of 12.9 percent.

To account for possible losses, the lender’s loan loss provision rose 17 percent from Sh787 million to Sh918 million.

Mr Mwangi said that the bank will rely on technology, which has allowed for impartial lending, to cut its average stock of bad loans.

“We are issuing 15,000 digital loans a day with an NPL of two percent. What we have done is remove human bias where you will give loans to relatives and friends. Now everything is digitised,” said Mr Mwangi.