Equity Bank posts slowest profit rise since NSE listing

Equity Bank Group CEO James Mwangi during the bank's Q3 results briefing at Equity Center in Nairobi on November 4, 2013. Photo/DIANA NGILA  NATION MEDID GROUP

By HERBLING DAVID

In Summary

• The bank said that its net profit stood at Sh8.9 billion in the period to September compared to Sh8.3 billion in a similar period last year, reflecting a 7.2 per cent growth that is slower than last year’s 13.8 per cent and 42.2 per cent in 2011
• Equity, which also operates in Uganda, South Sudan, Tanzania and Rwanda, saw income from its foreign subsidiaries drop 17.1 per cent to Sh580 million despite the near doubling of KCB’s earnings from external units to Sh1.33 billion

Equity Bank on Monday announced its slowest growth since listing on the Nairobi bourse in 2006 due to a jump in operating expenses and lower earnings from the lender’s foreign subsidiaries.

The bank said that its net profit stood at Sh8.9 billion in the period to September compared to Sh8.3 billion in a similar period last year, reflecting a 7.2 per cent growth that is slower than last year’s 13.8 per cent and 42.2 per cent in 2011.

Equity, which also operates in Uganda, South Sudan, Tanzania and Rwanda, saw income from its foreign subsidiaries drop 17.1 per cent to Sh580 million despite the near doubling of KCB’s earnings from external units to Sh1.33 billion.

The lender, which is the largest in East Africa by number of accounts, has been posting double-digit profit growth in recent years.

Chief executive James Mwangi attributed the slow down in profitability to 19 per cent jump in its total operating expenses to Sh17.6 billion, which outstripped Equity’s total interest income growth rate of 3.9 per cent to 23.6 billion.

“We’re creating infrastructure to position ourselves to reap from merchant businesses, diaspora remittances, transaction processing and connecting to all global payment systems,” said Mr Mwangi, adding that the bank spent Sh2 billion on IT upgrade.

“This will create huge opportunities for us next year as we leverage on technology.”

Analysts reckon that Equity Bank may struggle to hit its profit growth target of up to 30 per cent.

“We expect to revise our forecast EPS (earnings per share) downwards from Sh3.92 – key adjustment being cut in net interest income and increase in operating costs,” said Standard Investment Bank in a brief to the clients after the release of the results.

The jump in costs was driven by the establishment of agency outlets, hiring of extra staff and increased provision for bad debts, which stood at Sh2.3 billion from last year’s Sh1.56 billion.

Equity becomes the third listed bank to report quarter three results after Housing Finance and KCB.

The lender’s profit growth was below the industry average growth of 14.4 per cent as captured by Central Bank. Cheap deposits helped KCB and Housing Finance post a 15.4 per cent and 70 per cent increase in net profit for the nine months to September.

The banks benefited from a cut in lending rates by the Central Bank, which sent lending rates down to a low of 14 per cent during the period, from 25 per cent a year ago as deposit rates dropped by more than half.

Equity’s deposit costs dropped to Sh2.77 billion from Sh4.03 billion, translating into savings of Sh1.29 billion that is higher than the additional profits of Sh600 million.

The bank’s loan book grew by Sh22.9 billion Sh158.5 billion in the first nine months while deposits grew by Sh24.3 billion in the period to Sh190 billion.