High returns from government bonds in Kenya were vital in Equity Bank Group’s profitability in the nine months of the year which rose 13.1 per cent to Sh41.9 billion.
The second biggest lender in East Africa in terms of assets told investors that it favoured government bonds to traditional lending, pumping Sh468.1 billion in government papers during the period under review, a five per cent growth compared to a similar period in 2023.
Traditional loans to customers, however, dropped by five per cent to Sh800.1 billion compared to Sh845.9 billion in the corresponding period last year.
According to Equity Bank Holdings Group chief executive officer, James Mwangi, the period was characterized by a tough operating environment with inflation and currency devaluation picking in the earlier months of the year.
This saw the firm adopt sound coping mechanisms including diversified investments and high provision to safeguard against high loan defaults.
“The global operating environment characterised by macro-economic shocks saw the Group continuing with its conservative and prudent defensive approach by booking adequate loan loss provisions amounting to Sh12.7 billion. This resulted in an NPL coverage ratio of 67 per cent with a Non-Performing Loans (NPL) ratio of 13.4 per cent, way below the latest published industry average of 16.7 per cent,” Mwangi said.
The group recorded robust top line growth with interest income growing by 13 per cent to Sh125.9 billion from Sh111.1 billion during the period under review despite the high inflation and interest shocks which saw returns to customers in the form of interest expense grow 18 per cent to Sh45.3 billion from Sh38.5 billion.
“Non-funded income continues to grow steadily, increasing by Sh2 billion and yielding a total income growth of eight per cent to Sh138.9 billion, up from Sh128.9 billion yearon-year.”
The bank’s Group’s offensive strategy of regional and product diversification continues to bear fruit with the Kenya banking subsidiary contributing 47 per cent of revenue from 52 per cent in the previous period,” Mwangi said.
Regional subsidiaries accounted for 51 per cent of the profit for the period, with the performance complemented by strong capital buffers with a core capital ratio of 15.9 per cent and total capital ratio of 18.3 per cent versus regulatory threshold of 10.5 per cent and 14.5 per cent, respectively.
“We are proud that the Group has sufficient cushion on its key balance sheet buffers of liquidity, capital and NPL coverage while at the same time it continues to report above industry average profitability with return on average equity of 24.5 per cent and return on average assets of 3.1 per cent," Mwangi said.
The Democratic Republic of the Congo (DRC) and with synergies realised from the Cogebanque acquisition in Rwanda, subsidiaries now account for 47 per cent of total loans, up from 46 per cent in 2023, and contribute 47 per cent of profit after tax.
“The Group continues to make significant strides in its differentiated managerial strategy and in enhancing its control environment to better position it to navigate the challenging macroeconomic and complex regulatory landscape while driving sustainable growth,” the bank’s results released Tuesday in Nairobi reads.
The Group’s continued investment in modernizing its technology infrastructure coupled with high inflation saw its expenses excluding provisions increase by 19 per cent.
The good results saw earnings per share increase
to Sh10.4 up from Sh9.2.
