Equity Group chief executive James Mwangi
Double-digit growth from subsidiaries in the East African region lifted Equity Group’s net profits to KSh34.6 billion (UShs857.48bn) in the first nine months of the year, mitigating the 20 percent dip in earnings from its Kenyan unit.
The 3.7 percent growth in net profit from the KSh33.4 billion (UShs827.87bn) reported in a similar period last year came on the back of a rise in profitability in DR Congo, Uganda, Rwanda, and Tanzania.
The growth from businesses outside Kenya, excluding South Sudan, helped the group to escape a decline in earnings despite its single largest contributor to profits — Equity Bank Kenya — posting a 20 percent drop in net profits to KSh19.34 billion (UShs479.52bn).
In 2022, subsidiaries contributed KSh11 billion or 31 percent of the Equity Group profits after tax but this has now risen to KSh18.5 billion or 53.5 percent of the net earnings in the period under review.
Equity Group chief executive James Mwangi said elevated inflation, the continuing weakening of the shilling against major currencies and the rising interest rates have all impacted customers, forcing the lender to absorb part of the hit through the profit and loss (P&L) account.
“We chose to use the P&L to mitigate the full impact of inflation, deprecation, and high interest by ensuring we didn’t pass the full impact to the customer. The interest expense is, for instance, growing much faster than the interest income, deliberately to accommodate the customer for at least one year,” said Mr Mwangi.
The Kenya profit drop was in contrast to DRC’s Equity BCDC posting a net profit growth of 142 percent to KSh11.4 billion with Mr Mwangi expecting the subsidiary to beat Kenya in terms of return on equity and return on assets this financial year.
“If we thought the group was getting to maturity because Kenya is now close to maturity, the entire group has become a startup all over again because of the momentum in DRC, Uganda, Rwanda and the newfound energy that Tanzania is bringing to the table,” said Mr Mwangi.
Net profit of Rwanda unit was up 46 percent to KSh2.8 billion as Uganda and Tanzania saw a 23 percent and 136 percent rise to KSh2.1 billion (UShs52bn) and KSh0.7 billion respectively. South Sudan was flat at KSh1.5 billion.
Group net interest income grew by 21 percent to Sh72.6 billion on increased lending and repricing of loans while non-interest income was up 40 percent to KSh57.8 billion.
The lender repriced about 65 percent of the loan book in Kenya from about 13 percent to an average of 16.5 percent, according to Mary Njenga, head of financial and regulatory reporting at Equity Group.
“We are maintaining customers at an average of 16.5 percent when the sovereign risk on bonds over a similar period is at 18 percent. It is a deliberate decision. We did not want to deal with mass defaults,” said Mr Mwangi.
Operating expenses, however, rose by 46 percent from KSh57.8 billion to KSh84.5 billion on a near doubling of provisioning for loan defaults and a rise in staff costs and other operating costs, slowing the pace of growth in profits.
Equity increased the provisioning for non-performing loans by 97 percent to KSh18.99 billion in the period NPLs ratio jumped from nine to 12.2 percent. Other operating costs rose by 46.8 percent to KSh36.5 billion.