Equity Group continues to defy pandemic as net profit climbs by 79%

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  • Equity Group has reported a 79% growth in profit after tax for the third quarter of the year to KSh 26.9 billion
  • Mwangi said the performance was against a background of the COVID-19 pandemic and its consequent disruption of global economic activities with the resultant social disruptions

Regional banker Equity Group has reported a 79% growth in profit after tax for the third quarter of the year to KSh 26.9 billion.

The group’s Chief Executive James Mwangi said the performance was against a background of the COVID-19 pandemic and its consequent disruption of global economic activities with the resultant social disruptions.

He added that the bank had demonstrated a resilient, versatile business model, leadership agility, innovation and diversification capability and strength of strategy to report a 27% growth in total assets and a 25% growth in total income.

At the same time, the group’s resilience in the execution of an offensive and defensive strategy saw regional subsidiaries grow their Group contribution to deposits to 42% up from 40%, revenue to 37% up from 30% and profit before tax to 26% up from 21%.

Agility saw the 27% growth in total funding deployed into public and private sectors resulting in 36% growth in lending.

Diversification driven by a regional approach with operations in 6 countries helped in diversifying sovereign risks and a currency mix risk of 56.6% local currency and 43.4% foreign currency risk-mitigating exchange and translation risks.

Mwangi added that an inclusive business model for all market segments and sectors of the economy and segments and class of the population demography helped to mitigate loan book quality and performance leading to an NPL of 8.9% compared to Kenya industry performance of 13.9% NPLs.

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The offensive growth strategy has seen a 23% growth in net loans and advances and a 62% growth in investment in Government securities resulting in a 29% growth in interest income.

The growth in earning assets have been funded by a 48% growth in long-term funds of KSh 104.8 billion up from KSh70.7 billion and a 27% growth in customer deposits of KSh 875.7 billion up from KSh 691 billion driving total assets growth of 27% to KSh 1.184 trillion up from KSh 933.9 billion.

Higher quality non funded income grew faster at 29% to KSh 31.4 billon up from KSh 24.3 billion than net interest income which recorded a 23% growth to KSh 48.5 billion up from KSh 39.3 billion.

FX-trading income grew by 40% to KSh 5.6 billion up from KSh 4 billion. E-commerce revenue grew to KSh 953.5 million up from zero. Bond trading income increased to KSh 2.6 billion up from KSh 2.2 billion.

The Group is increasingly shifting from its legacy brick and mortar model of fixed cost structure of branches and ATMs to variable cost, self-service model of client’s own electronic devices or third-party infrastructure.

Out of the 975.1 million transactions processed for the 9 months of the year, only 30.1 million transactions or 3% of all transactions were handled at the legacy bank by branches and ATMs with the digital bank handling and processing 945 million transactions or 97% of all the transactions with the self-service customers’ own device mobile channel handling and processing 90% of digital transactions.

The group’s resilience in execution of an offensive and defensive strategy saw regional subsidiaries grow their Group contribution to deposits to 42% up from 40%, revenue to 37% up from 30% and profit before tax to 26% up from 21% / File

“Increasingly mobile internet and e-commerce are becoming the preferred channels of choice for payment processing and lifestyle fulfilment with 74% of customers opting for cashless transactions,” said Mwangi.

Merchants digital payments ‘Pay with Equity” (PWE) transactions grew by 408% from 3.1 million transactions to 15.8 million transactions while the value of the transactions grew by 392% from KSh 17.1 billion to 84.1 billion.

Retail personal internet (Eazzy Net) transactions grew by 287% from 400,000 transactions to 1.5 million transactions with value transacted growing by 404% from KSh 16.6 billion to KSh 83.5 billion.

Corporate internet banking transactions grew by 42% while the value of transactions grew by 77%. Eazzy App transactions grew by 82% while the volume transacted grew by 153%.

“Covid has acted as a tailwind to the adoption of digital banking making us transform into a Big Tech in the financial services sector” added Mwangi.

The Group has continued to closely manage the COVID-19 accommodated loans of KSh171 billion.

Loans worth KSh 122 billion have resumed repayment, KSh 4 billion has been downgraded to NPL and provided for (Under stage 3) with KSh 45 billion constituting 7% of the total outstanding gross loan book of KSh 608 billion remaining under Covid-19 moratorium.

“We are glad we accommodated our customers to adapt to the COVID-19 environment, to adjust, repurpose and retool their businesses to be fit for purpose in the new normal. This not only kept the lights of our economies on but helped a lot of businesses survive, retain their employees, support their families and reduce transition of a health pandemic into a social and economic meltdown,” added Mwangi.

Close management of the loan book and strong customer relationship management saw an improvement of the PAR (Portfolio at Risk) to 8.9% down from 10.8% with NPL (Non-performing loan) provision coverage improving to 91.2% up from 86% and a coverage of 104% with loan credit guarantee facilitation.

The improvement in quality of the loan book and its management had a significant impact on the financial performance of the Group driven by the reduction of cost of risk from 4.8% to 1.4% to record a 68% reduction of loan loss provisions to KSh 4.6 billion down from KSh 14.3 billion helped record a 3% decline in total operating expenses.

The growth of Group total funding grew by 27% driven by growth in customer deposits by 27% up from KSh 875.7 billion from KSh 6.91 billion was matched with a slower pace of growth of loan book of 23% up to KSh 559 billion from KSh 453.9 billion.

Liquidity ratios strengthened to 59.5% up from 55.7% as a result of increased investment in Government securities which grew by 62% to KSh 361.3 billion up from KSh 222.8 billion.

“The strong liquidity position puts us in a pole position to take advantage of market opportunities while deployment into a higher-yielding asset class with a revenue growth opportunity and better yields and margins.

Efficiency gains enhanced Group return on Equity to 24% up from 16.9% while return on assets improved to 3.2% up from 2.5%.

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Wanjiku Njuguna is a Kenyan-based business reporter with experience of more than eight years.

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