Equity Bank prepares for Munga exit as it appoints new directors

Equity Bank has announced the retirement of its long-serving chairman and founder Peter Munga from the lender’s board of directors, heralding a new era for the lender that is eyeing a pan African banking status.

In filings to local regulatory bodies, the bank said Prof Isaac Macharia, a serving member of the bank’s board would take over from Munga as chair of Equity Bank’s local subsidiary.

In an interview with Weekend Business, Munga said the changes come after Equity Group Holdings Limited (EGHL) took a hard look at its operating model and is now instituting changes that will steer it through the next growth phase. The company, and indeed the entire banking industry, is now grappling with a stifling interest rate cap regime, shifting consumer preferences and rising competitive threats.

Munga said a transition was among the strategies that would see the bank adjust to a new era. In addition to the new chair for its Kenyan division, the firm appointed two independent chairpersons for its banking offshoots in Uganda and Rwanda, as it positions for the next phase of growth where subsidiaries are expected to play a key role in contributing to its bottom line.

Prof Macharia, an Ear, Nose and Throat specialist at the University of Nairobi, is also a fellow of the College of Surgeons of East, Central and Southern Africa.

The company announced the appointments alongside a trading update. It also reported that it had completed a self-initiated process of rotating its long-serving statutory auditors, Ernst and Young (EY), to be replaced by a new auditor it only refers to as “one of the big four global names.”

Munga said the changes were planned in line with the long-term growth strategy of the Group terming them “a way of strengthening corporate governance and preparing for succession planning”. He will, however, continue to serve as chairman of the non-operating entity — EGHL.

Adverse challenges

“The Board has been working on our long term vision and strategy and recognises the need to continue developing and evolving the structure for the company to strengthen corporate governance and deliver its next phase of growth,” Munga said. Mr Munga founded Equity as building society in 1984 in Kangema in Muranga County and has seen it through growth paved with challenges including bankruptcy that almost forced it to close shop in early 1990s.

During an investor briefing last week, the group’s MD James Mwangi told stakeholders that the company’s regional expansion to five countries in eastern Africa and investment in non-banking subsidiaries has enabled the group to cushion itself against adverse challenges from the operating environment that may arise from any of the markets.

He said that the group’s regional expansion and diversification strategy had maintained a growth momentum with subsidiaries in Rwanda, DRC and Tanzania registering growth in deposits of 34, 29 and 23 per cent, respectively, in the financial year to December 2016.

Subsidiaries in DRC, Uganda and Rwanda saw loan growth of 25, 24 and 22 per cent respectively. The group’s profit for the year, however, dropped by four per cent to Sh16.5 billion following a rise in bad loans.

“As a result of the growth across the different balance sheet items, total revenue grew by 14 per cent from Sh56 billion to Sh64 billion, driven by improved revenue from the subsidiaries. Growth in interest income grew by 19 per cent from Sh43 billion to Sh52 billion, and growth in non-funded income reached Sh22.2 billion from Sh21.9 billion,” Mwangi said.

The move points to a bank shaking off its entrepreneurial tag and stepping up to a pan-African banking tag. The group has also appointed Mr David Ansell, an American as vice-chairman EGHL. Mr Ansell has served as president of Citibank Russia among other high-ranking positions in the global banking sector, but the question many will be asking is: Could his appointment be a hint of Equity’s possible succession matrix and how it plans to line up for a greater role in Africa and global banking environment?

When Weekend Business asked him whether Equity had any succession plans for its CEO, last year, Ansell said: “The board has discussed Mwangi’s succession. We have plans — both short-term if he is hit by a bus, and long-term. But we don’t anticipate he’ll leave any time soon if he is in good health.”

Most large firms plan for seamless succession of their boards by grooming key personnel at the executive level or tapping talent from outside the organisation several years in advance. This, according to Mwangi, is part of his job as CEO — managing risk for his organisation. Succession planning has, however, proved a particularly thorny corporate governance challenge, especially for big organisations.

In March last year, Mwangi sought to satisfy shareholders’ curiosity when he said he has been flying the Equity plane with “co-pilots” who can even guide the bank better to its destination when their time comes.

“We have put a succession-planning process in place. It is simply one element of good business. Aside from the obvious preventative aspect, it also helps keep the board and my executive team aligned with our overall strategy and common goals, while bringing us peace of mind,” Mwangi said.

The boards of EBKL and EGHL met last week to approve the changes and have already notified market regulators — Nairobi Securities Exchange, Central Bank of Kenya and the Capital Markets Authority via statutory documents filed last Thursday.

The bank says that the appointment of Prof Macharia was made to separate leadership of the Kenyan board from that of EGHL. “Mr David Ansell is appointed vice chairman of EGHL to provide for continuity during transition. Mr Ansell is a serving member of both EBKL board (where he is the chairman of the credit committee) and EGHL,” states the document signed by Mwangi.

Other appointments

Ansell has given up his duties as chairman of the group’s subsidiary boards in Uganda and Rwanda while Apollo Makubuya takes up the position of non-executive chairman, Uganda. Evelyn Rutagwenda, a former Auditor General in Rwanda, will take over as chairperson of the Rwandan board.

Mr Makubuya is a Ugandan lawyer and a senior partner at MMAKS Advocates where he works with the corporate advisory team. He mainly advises mining companies, banks, regional and international investors on corporate, commercial law and tax issues.

Mrs Rutagwenda not only brings diversity to the board, but also comes with a wealth of experience having worked as the Auditor General of Rwanda and Secretary General of Uganda National Chamber of Commerce and Industry. She spearheaded the formation of the Institute of Certified Public Accountants of Rwanda (ICPAR).