Equity Bank profit surges by 79 per cent to Sh26.9 billion

Equity Bank CEO James Mwangi [David Gichuru, Standard]

Equity Bank’s net profit in the third quarter of 2021 grew by 79 per cent to hit Sh26.9 billion as the lender substantially cut its stock of bad loans.

The nine-months profit has raced past the Sh20.1 billion profit that the lender posted in the full-year ended December 2020.

By end of September last year, the listed lender made a profit after tax of Sh15.04 billion in a tumultuous period in which banks hysterically put up a wall of insurance against possible defaults by borrowers who were devastated by the pandemic.

Equity Bank’s profitability was also boosted by a 25 per cent uptick in its revenues to Sh80.5 billion, reflecting both improved business activities and aggressive debt collection efforts by the most profitable bank in the region.

In the first nine months last year, the lender’s income was Sh64.1 billion, a big chunk eaten away by loan-loss provision.

"We are emerging from Covid-19. We feel that the country has almost bounced back," James Mwangi, Equity Bank Chief Executive Officer, said during an investor briefing on Monday.

Mr Mwangi was confident that following easing of the Covid-19 containment measures, the revenues will keep growing.

Mwangi talked of Equity Bank's twin strategy of offensive and defensive through which the lender has aggressively sought to grow its revenue while managing its costs, particularly bad loans.

Interest income from loans grew by 23.4 per cent to Sh48.5 billion, with a good chunk of the earnings coming from government securities.

Income from fees and commissions, which is the non-funded income, grew faster at 29 per cent to Sh32 billion.

Much of the income came from forex income, bond trading, trade finance, with Mwangi noting that Equity was increasingly transforming into “a service bank.”

With a lot of customers beginning to service their loans as the moratorium period in which borrowers had been given a debt repayment holiday of between six and 12 months ended, Equity Bank released money that had been set aside as provision against defaults. Loan-loss provision dropped by 68 per cent to Sh5.1 billion compared to Sh14.8 billion in September 2021.

And as a result, the company's total operating costs dropped to Sh43.8 billion from Sh45.3 billion.

This was despite an increase interest expense and staff costs.

The increase in interest expense was due to the lender’s decision to chalk up more long-term loans from development partners.

The bank's stock of bad loans, as a percentage of total, has reduced from 10.4 per cent in September last year to 8.9 per cent in the period under review. In the first quarter, non-performing loans (NPLs) were at 11.3 per cent.

"We are very confident that our loan book will continue to improve," said Mwangi.

He noted that customers that had been given a moratorium, with loans amounting Sh171 billion, started to pay as soon as they were able to pay.

The NPLs were covered up 91 per cent. When you include the credit risk guarantees that Equity Bank received, the coverage rises to 104 per cent.

Equity Group is leveraging on its Sh1.184 trillion balance sheet to make incursion in new territories including the Democratic Republic of Congo.

Equity Group, which besides Kenya is in five other countries, saw its deposits grow by 27 per cent to Sh875.7 billion.

Its loan-book expanded by 23 per cent to Sh559 billion.

President Uhuru Kenyatta recently ended the dusk-to-dawn curfew that had been in place since March 13 when the country reported its first case of Covid-19.

This is set to increase business hours, especially in the hospitality and transport sectors which were among the hardest hit by the Covid-19 pandemic.