Equity Group #ticker: invested an additional Sh1 billion in its Tanzanian banking subsidiary last year when the regulator in that market introduced new prudential rules that put a strain on the lenders’ capital.
Kenya’s second-largest bank joins NIC Group, which also provided an extra Sh350 million of new capital to its unit in that market.
Equity retained its full ownership of Equity Bank Tanzania in which its cumulative investment rose to Sh3.8 billion from Sh2.8 billion in 2017.
“On November 14, 2018, additional capital of 226,000 new shares with a par value of TSh100,000 was issued and paid by Equity Group Plc to Equity Bank Tanzania Limited for a consideration of US$ 10 million (Sh1.025 billion),” the Nairobi Securities Exchange-listed firm says in its latest annual report.
Bank of Tanzania last year published rules requiring lenders to write off any loan that has not performed in four consecutive quarters (one year) instead of the previous 12 consecutive quarters (three years).
The rule ignored the value of securities held for bad debt written off under the more conservative international accounting standards IFRS9, putting a strain on banks’ capital.
Equity’s Tanzanian unit recorded a pre-tax loss of Sh559 million last year, reversing a pre-tax profit of Sh352 million in 2017. It was the only unit to report a loss in the review period.
Its expenses, including impairment of financial assets, rose to Sh2.6 billion from Sh1.8 billion, underlining the impact of the new rules.
NIC’s Tanzanian subsidiary’s net losses also widened to Sh113.6 million from Sh107.2 million.
CBA Group also took a hit of more than Sh600 million from the new loan impairment rules last year.
The latest investment by Equity continues the lender’s current strategy of strengthening its existing regional operations, postponing plans to enter new markets.
The company in 2017 invested an additional Sh1 billion in its Ugandan subsidiary which it fully owns.