Equity, Kenya’s second-biggest bank weathered the effects of the Covid-19 pandemic to surpass the US$ 10 billion (Ksh 1 trillion) mark in 2020 a year whose events are unprecedented.
The bank’s chairman, Prof Macharia Muthure, who presented the statement of finances on his first year of service since taking over leadership at the bank said that 2020 was a year like no other where the world was confronted with the Covid-19 pandemic.
While Covid-19 is not the first major pandemic, it is unprecedented in its scope and rapid transmission across regions, fostered by advances in transport across the globe. The impact of this pandemic including the containment measures by governments is an estimated 4.4 per cent decline in the global economy.
This makes the effects of the pandemic the worst since the Great Depression of the 1930s with the loss of millions of jobs, approximately 3 million deaths and over 150 million infections as of May 2021.
Prof Muthure says that in this exceptional environment, the bank’s essence of social and economic transformation was severely tested. He says that in 2020, the bank positioned its business to be a safe harbour to absorb the economic shock brought by the pandemic through a number of defensive initiatives that not only aimed to minimize the impact of the pandemic on its business and staff but also on all other stakeholders including customers, the communities in which the bank operates and frontline workers.
The bank’s move to expand in the year bore fruit.
In 2020, Equity reached the Ksh1 trillion milestone as its assets grew organically as well as through mergers and acquisitions. The bank acquired Banque Commerciale du Congo (BCDC) and through this merger, Equity Bank Congo and BCDC are now EquityBCDC. The merger makes EquityBCDC the second largest bank in the Democratic Republic of Congo (DRC).
This was a strategic investment that enabled the Group to seize the opportunity to expand operations into DRC.
Equity’s operations in the DRC now constitute 28 per cent of the Group by asset size signalling the company’s positive sentiment on the future outlook of the country. By virtue of the acquisition, Equity also became the largest bank by asset size at the Nairobi Securities Exchange (NSE).
Banking penetration in the DRC ranks at the bottom of regional peers, with only 6 per cent of the population holding a bank account. This presents a great opportunity for the Equity Group to leverage on its digital platform and inclusive products to penetrate the market and generate high returns.
Despite experiencing growth in several of the Group’s key performance indicators, profit reduced on account of a five-fold increase in the group’s loan loss provision driven by the need to account for the uncertainty that arose in the performance of the Covid-accommodated book.
“This increase of provisions was to provide our investors with comfort on the safety of the balance sheet and certainty into our future earnings as the Group continues to grow. Non-funded and net interest income improved and our business remained highly liquid, while our capital position strengthened,” noted Prof Muthure.
The Group also received additional Tier 2 capital from development finance partners to the tune of Khs 11 billion to support SME businesses in the region.
Equity’s future of work
For growth, the Group’s overarching business strategy focuses on leveraging technology and innovation, the convergence of various financial products and services for focused strategic delivery, scaling of the brand visibility and loyalty, regional expansion, enhancing customer experience, business transformation and exercising strict operational control with the opportunity to enhance these aspects despite the unpredictable environment, entrenching our use of digital channels, improving customer experience and loyalty, extending our footprint and brand visibility and improving our cost efficiency and productivity.
The chairman attributed the growth to the Group’s prioritising its customers.
“Predominantly, we thrived because of our commitment to our people, which was more than ever proven as the core foundation on which our sustainable business is built. One of the marked changes instituted through our Business Continuity Plan was the work from home policy. Approximately 45 per cent of our employees continue to work from home. We view this as a precursor to a bolder transformation of work and the workplace.”
Globally, there is a combination of disruptive forces including expanded freelancing and the rising “gig” economy and which are transforming the traditional work model as well as technological forces like big data, human-machine collaboration, remote crowdsourcing, and automation. This means that the Group is adopting new ways of delivering value, including rethinking the workplace and the idea of work.
“The financial services workplace of the future will be agile, avoiding legacy challenges of traditional models, while capitalizing on new technologies and new employment models. Our corporate purpose of transforming lives, giving dignity and expanding opportunities for wealth creation was authenticated in this tumultuous period,” notes Prof Muthure.
To ensure that employees and customers were protected, shareholder value preserved and communities supported, the Group offered repayment holidays, fee waivers and loan restructuring for customers enabling them to weather the economic downturn in 2020.
The Group also went big on mobile banking and enhanced contactless payments in a bid to protect their customers. In addition, customers impacted by Covid-19, and who accounted for 32 per cent of the Group’s loan portfolio, were offered repayment moratoriums of up to 3 years depending on sector and impact.
Also, the Group waived loan restructuring fees amounting to Kshs 1.2 billion.
Despite the pandemic, the Group experienced massive deposit growth, with customers increasing the Group’s deposits by 53 per cent to Kshs 740.8 billion.
“However, it takes time to deploy these funds into private-sector lending and the Group is therefore expecting growth in 2021, especially in lending to the real economy. These assets require capital to support the growth and the Board once again made a resolution to withhold dividends to support this future growth. We are confident the investment to fund this growth is now complete and the provisions and credit risk guarantees held against the loan book are adequate enough to cover any future uncertainty. The Group is confident of returning to payment of dividends in 2021, with its payout policy of 30 per cent – 50 per cent of profit after tax and because of the investment made in this growth, this percentage is expected to be a higher amount than it has been in the past.”
Prof Muthure noted that they have invested in high growth subsidiaries that are increasingly demonstrating transition into high returns.
Noteworthy is that one of the unforeseen outcomes of the pandemic has been the increased pace of adoption of technology solutions that have helped to enforce the health protocols of social distancing, minimised interaction with cash and reduced movement.
The Chairman notes that the Group has registered an increased use of their digital channels, with 98 per cent of all transactions now being conducted outside the bank premises.
“We envisage that this trend will continue and will influence the way we work and conduct our business in an unparalleled manner. With this in mind, we have strengthened our technology capabilities through increased investments in specialist human and technological resources to ensure that we offer cutting edge products and services. We have also enhanced our use of data analytics and Artificial Intelligence to develop specialised and tailored services that are relevant and consumer-driven,” he adds.