DIP

Equity Bank profits drop 14% on high loan provision

Total non-performing loans for the quarter under review grew to Sh45.9 billion from Sh26.5 billion similar period last year

In Summary
  • Profit after tax dropped to Sh15 billion compared from Sh17.5 billion
  • Loan loss risk provisions grew by 11-fold from Sh1.3 billion to Sh14.3 billion
Equity Bank CEO James Mwangi
Equity Bank CEO James Mwangi
Image: FILE

The impact of the coronavirus on the economy eroded Equity Bank Group’s earnings for nine months to September, with net profit shrinking by 14 per cent.

The third quarter results released Thursday shows the bank’s profit after tax dropped to Sh15 billion compared to Sh17.5 billion reported in the corresponding quarter last year.

Loan loss risk provisions grew 11-fold from Sh1.3 billion to Sh14.3 billion increasing non performing loan coverage to 86 per cent in anticipation of defaults due to reduced earning among borrowers.  

 
 
 
 

Total non-performing loans for the quarter under review grew to Sh45.9 billion from Sh26.5 billion over a similar period last year, representing a 73.2 per cent increase.

This drop saw shareholders’ returns on equity reduced from 22.9 per cent to 16.9 per cent and return on average assets from 3.7 per cent to 2.5 per cent.

Equity Bank is announcing a drop in revenue just a day after its peer, KCB Group reported a 43 per cent drop in net earnings also on high loan provision. 

KCB Group Plc net profits for the nine months ended September 30 dropped to Sh10.9 from Sh19.2 billion the previous year.

According to Equity Bank Group MD James Mwangi, the bank continues to demonstrate high resilience in the face of Covid-19 pendemic.

"We grew our loan book by 30 per cent year-on-year in order to support our customers who saw opportunities of green shoots and diversification in the COVID-19 environment," Mwangi said. 

Interest income grew by 22 per cent to Sh39.3 billion from Sh32.3 billion, while non-funded income rose by 11per cent to Sh24.4 billion from Sh22 billion with total income growing by 17 per cent to Sh63.7 billion from Sh54.3 billion.

 

Cost income ratio has declined from 51.3 per cent to 47.6 per cent on digital transformation.

 
 
 

The enhancement IT capability to allow digitisation has enabled massive growth in transaction processing volume without growing operational costs, allowing the lender to maintain a low-cost funding.

For the first time, the digital bank overtook the legacy bank in both the number of transactions and value of transactions handled on a daily basis. 

Average daily transaction on digital channels hit Sh1.98 billion compared to Sh1.73 billion for over the counter transaction.

The Group maintained healthy capital buffers with core capital to risk weighted asset standing at 14.5 per cent while total capital to risk weighted assets stood at 17.5 per cent.

The lender maintained its position as the second largest bank in the country in terms of asset value, with its total asset rising to Sh944.9 billion compared to Sh744.4 billion same period last year. 

Mwangi said that regional expansion and business diversification efforts have reduced dependence on Kenya for Group performance making the Group truly a regional financial services provider.

Regional subsidiaries now contribute 40 per cent of customer deposits, 39 per cent of the group's total assets, 33 per cent of the loan book, 30 per cent of the Group’s revenue and 25 per cent of the Group’s profit before tax.