•It reported 12% drop in net earnings for the year ended December 31, 2020
•The lender trounced KCB to become biggest in Kenya in terms of asset value and first in the region to cross Sh1 trillion mark
Equity Bank Group's move to hold dividends for the second year running on lower profits saw its share price drop 8.2 per cent by mid Monday.
The lender's share at the Nairobi Securities Exchange (NSE) traded at Sh37.65 by noon compared to Sh41.85 last Friday after it announced a 12 per cent drop in net earnings for the year ended December 31,2020.
Investors at the bank suffered a similar fate in May last year after the bank decided to recall a dividend pay-out of Sh2.50 a share to boots its cash reserve due to the Covid-19 outbreak.
The bank's profits shrunk to Sh20.1 billion compared to Sh22.6 billion the previous year on high loan loss provision due to Covid-19 economic pressures that made it hard for borrowers to service debt.
Total operating costs grew by 67 per cent to Sh71 billion up from Sh42.5 billion driven by a 496 per cent growth in gross loan provision of Sh26.6 billion up from Sh5.3 billion in the prior year, increasing the cost of risk to 6.1 per cent up from 1.3 per cent the previous year.
The higher loan loss provisions enhanced NPL coverage to 89 per cent.
It accommodated Sh171 billion of loans for customers whose repayment capacity was adversely impacted by Covid-19. This represents 32 per cent of the entire gross loan book of Sh530 billion.
At least Sh40 billion of the restructured loans had resumed repayments and normalised by the end of the financial year under review.
An analysis of the entire Sh171 billion accommodated loans casts concerns on the future viability and quality on Sh9 billion of loans promoting the downgrade of the said doubtful loans to NPL increasing the NPL portfolio to 11 per cent up from 10.4 per cent in September.
''The impact of Covid-19 pandemic made the year 2020 an exceedingly difficult year characterised by lost jobs, unemployment, lost investments and human misery,'' Equity Bank Group CEO James Mwangi said.
He said they drifted from the balance sheet, profits, and numbers and chose to protect customers and staff.
The bank weathered the Covid-19 disruption to register a 51 per cent growth in its balance sheet with total assets growing to Sh1.015 trillion up from Sh674 billion the previous year.
According to the bank, the growth was delivered through both organic and merger and acquisition strategies, making it the first financial institution to cross the Sh1 trillion rubicon in East and Central Africa.
It edged out KCB Group to become the largest lender in Kenya in terms of asset value.
Last week, KCB inched closer to crossing the Sh1 trillion balance sheet mark, booking Sh987.8 billion in assets, a 10 per cent jump from the previous year, contributed by loan book growth, funded by increased customer deposits.
The growth was also driven by a 53 per cent increase in customer deposits which grew to Sh741 billion up from Sh483 billion, while long-term debt financing grew by 71 per cent to Sh97 billion from Sh57 billion with shareholders’ funds growing by 24 per cent to Sh139 billion up from Sh112 billion.
The Group’s cost income ratio improved to 48.5 per cent from 51.1 per cent the previous year driven by improvement in cost of funds from 2.9 per cent to 2.8 per cent and enhancement of yields on government securities from 10.1 per cent to 10.7 per cent.
This was despite realisation of capital gains on the securities trading of Sh3 billion up from Sh1.1 billion the previous year and 117 per cent growth of mark to market gains to Sh7.4 billion up from Sh3.4billion.
However, yields on loans declined from 12.6 per cent to 12.4 per cent due to increased suspended interest on increased NPL book and change of loan book mix of local currency to dollar currency to 57:43 from 64:36 ratio in favour of the local currency.
This was as a result of acquisition and merger of BCDC in DRC and increase of 186 per cent to cash and cash equivalent.