Equity salivates at Ethiopian market, Q1 profits up 64%

Equity Bank Group will not hesitate to enter Ethiopia once the country’s financial sector is democratised.  

Speaking at the Q1 2021 investor briefing, the group's  MD James Mwangi commended the country for opening up its telecommunication sector that has granted a Safaricom consortium entry  into the market.

''Liberalisation of the telco market in Ethiopia gives us hope and optimism that banking & financial services are next. We are placing ourselves ready in the event that the opportunity presents itself,’’ Mwangi said.

He said Ethiopia’s social-economic dynamics mirrors that of Kenya and presents a viable opportunity for the bank to enhance its Pan African agenda.  

Although the majority (83.3 per cent) of banks in Ethiopia are privately owned, most of the sector’s capital at 60.1 per cent is held by state entities.

The Commercial Bank of Ethiopia (CBE) and Development Bank of Ethiopia (DBE) that are owned by the state account, for at least 60 per cent of the sector’s capital.

Even so, the state banks’ share of total banking sector capital fell by 4.3 per cent from the previous year, suggesting the private sector is making some gains in the market.

Ethiopia is working on the Homegrown Economic Reform programme, which accommodates both the opportunities of the free market and the role of the state to address the country’s economic challenges—although with a tilt towards the non-state sector.

The programme envisages boosting the private sector’s contribution to the overall economy by opening up major public enterprises starting with the telecommunication sector.

Equity Group has been making inroads in different parts of Africa, with the latest being DRC Congo where it acquired a stake in the country’s second-largest bank, Banque Commerciale du Congo (BCDC).

At the end of December, the Kenyan financial services giant in terms of assets, which grew to Sh1.066 trillion in the first three months of the year, had increased its stake in BCDC to more than 77 per cent.

During the financial year under review, the lender grew net profits by 64 per cent to Sh8.7 billion from Sh5.3 billion same period last year.

The bank attributed the results to steady business recovery after a tough social-economic environment brought about by Covid-19 on ease of Covid-19 restrictive measures.

The firm's loan loss provision dropped from Sh3 billion to Sh1.1 billion.

“We have adopted a two-pronged strategy of being offensive and defensive. We strengthened our capital buffers by retaining profits and withholding dividend payouts, took long-term loan facilities that strengthened our liquidity buffers,’’ Mwangi said.

Interest income grew by 32 per cent to Sh20.3 billion from Sh15.3 billion in 2020 while non-funded income grew by 30 per cent to contribute 42 per cent of total income.

Regional subsidiaries registered resilience and robust growth to contribute 40 per cent of total deposits and total assets and 23 per cent of profit before tax with Rwanda and Uganda delivering above the cost of capital returns.

According to Mwangi, the lender took advantage of consumers’ lifestyle changes that acted as a tailwind to human adoption of technology resulting in a change in consumer lives and behaviour.

It executed a rapid business transformation that saw 98per cent of all transactions being digital in the count, and 65 per cent of volume by value.

“Over the last one year, we have witnessed firsthand as our customers adopted our mobile and Internet technology channels on self-service devices making our financial services offering truly a 24-hour service and lifestyle”, Mwangi said.

The Group reported a non-performing loan book of 11.3 per cent compared to the industry average of 14.6 per cent. Strong risk mitigation saw NPL coverage stand at 99per cent from a mix of provisions at 87 per cent and 12 per cent of credit risk guarantees.

Of the 31 per cent of the loan book, or Sh171 billion Covid-19 accommodated or rescheduled loan book, Sh59 billion has resumed repayment with Sh5 billion fully repaid and Sh3 billion behind schedule in repayment.

At least Sh66 billion is expected to resume repayment within 6 months by September 30.