PROFITS

Equity Bank posts first organic profit in interest cap regime

The bank’s net loans grew to Sh305.5 billion from Sh271.1 billion in the corresponding quarter last year.

In Summary

• Net profit rose five per cent to Sh6.2 billion from Sh5.9 billion in the corresponding quarter last year.

Equity Bank CEO James Mwangi
Equity Bank CEO James Mwangi
Image: FILE

Loans dethroned government securities as the main contributor to Equity Bank Group’s growth for the first time since the law capping interest rates came to force in September 2016.

Speaking while unveiling the bank’s quarter one 2019 report yesterday, group chief executive James Mwangi was jubilant about the return to organic growth, saying the 13 per cent growth in loan book is an indicator that the bank’s  money is in supply, creating value for the economy.

The bank’s net loans grew to Sh305.5 billion from Sh271.1 billion in the corresponding quarter last year, pushing up total assets by 15 per cent to Sh605.7 billion compared to Sh527.8 billion reported same period last year.

 

Government securities also grew by 13 per cent to Sh169.7 billion during the quarter under review but yields sunk 70 basis points to 10 per cent compared to 10.7 per cent in the quarter ended March 2018.

"We have learned to operate with interest capping as a new norm despite the associated challenge of risk pricing. I am happy that we have bounced back to organic growth after two years of depressed growth,’’ Mwangi said.

The interest cap law saw banks in Kenya resort to government securities to grow wealth, a move that saw a significant drop in loan book, shrinking credit to the private sector.  

For instance last year, Equity Bank’s  holdings of government securities shot up 26 per cent from Sh128 billion in 2017 to Sh161 billion at the close of 2018, while its loan book grew by only six percent from Sh279.1 billion to Sh297.2 billion.

Equity Bank attributed the growth of its loan book to digital disruption, with 93 per cent of total loans channeled through mobile platform.

According to the report in which the group profits rose by five per cent to Sh6.2 billion from Sh5.9 billion in the corresponding quarter last year on improved loan book and customer deposits, 77 per cent were transacted digitally, 12 per cent via agencies while branches accounted for only three per cent.

The bank's gross profits rose by six per cent to Sh8.8 billion compared to Sh8.3 billion in the quarter ended March 2018.

 

The bank's total income grew to Sh17.6 billion from Sh16.6 billion while its interest income rose marginally to Sh13.5 billion from Sh12.7 billion last year.

In March, Mwangi indicated that the growth of government securities to an equivalent of 54 per cent of the loan book could call a rethink of strategy back towards customer lending, with yields on the treasuries also coming down in the past year.

“As a strategy, we now want to push lending to the private sector using innovative methods, which is why we have projected, whether interest rate capping is there or not, to grow the loan book by between 10 and 15 percent in 2019,’’ Mwangi said two  months ago.