Dr James Mwangi, Equity Group Chief Executive Officer. PHOTO | FILE | NMG
Equity Group
Holdings (EGH) has halted its cross-border expansion bid after the
failed acquisition of four banks in Rwanda, Zambia, Tanzania and
Mozambique last week.
Chief executive James Mwangi told The EastAfrican the
lender which is listed on the Nairobi Securities Exchange (NSE) will
now focus on “vertical” growth by consolidating and strengthening its
business operations in the existing six markets, with the aim of
transforming into a Ksh1 trillion ($10 billion) bank with 100 million
customers.
“Our expansion is in two ways; horizontal
and vertical. We have opted for vertical expansion where you deepen and
then scale up your market share in the countries you are operating in,”
said Mwangi.
“So, meanwhile what will we do because we
already have six banks? We will focus on those banks, deepen them and
make them stronger. We are also targeting to increase the market share
in the countries we are in. The DRC that transaction is complete and we
will be doubling our market share and then using the new capability to
really try to grow significantly.”
PRUDENCE AND CAUTION
Equity
Bank’s plan to acquire 100 per cent shareholding in BancABC of Zambia,
Mozambique and Tanzania including 62 per cent of the shares of Banque
Populaire du Rwanda Ltd fell through last week after 16 months of
negotiations with Atlas Mara Ltd (ATMA). If successful, the transaction
could have lifted Equity Bank’s presence in nine African countries.
“ATMA is an event that has made it prudent for us to be
cautious. You already don’t understand the risk of Covid-19 and nobody
understands. So Covid-19 situation has made us to sit back. We also
don’t want to be telling shareholders that we are being cautious that is
why we are withholding dividends for them and on the other side you are
demonstrating offensive expansionist psychology of buying the banks,”
said Mwangi
According to Dr Mwangi, growing the
existing businesses will require minimum resources, free of uncertainty
compared to cross border expansion (horizontal growth) under the current
operating environment triggered by Covid-19 Pandemic.
“We
are not going to change our ambition of a Ksh1 trillion ($10 billion)
bank but we don’t have to go to Zambia and Mozambique to achieve a Ksh1
trillion ($10 billion) worth of assets. I just need to increase Kenya’s
market share by two percentage points. It is a vertical expansion with
minimal resource requirement and without taking the uncertainty of new
markets. This is because I understand the markets and I’m already there,
so I will just have to deepen them,” he said.
“Remember
we are still aggressive on our strategy to reach to reach 100 million
customers. If we can get 100 million customers in Kenya, Tanzania,
Rwanda, DR Congo and Uganda, I would have achieved my objective. That is
what I have turned to pursuing. The energy I had built up and resources
are fully deployed there.”
The Equity-ATMA deal was first made public in April 2019 with a timeline of being concluded before the end of the year.
However, in January, Equity announced the extension of discussions with ATMA for reasons they preferred to remain unknown.
The deal finally collapsed last week after Equity Bank changed plan in view of the Covid-19 pandemic.
“After
careful consideration, EGH and ATMA have mutually agreed to discontinue
discussions on the transaction for the foreseeable future.”
Market
analysts said the move will give the lender the time to rethink its
investment plans and strengthen its cash flow position amid increased
non-performing loans and huge loan restructuring triggered by Covid-19.
“We
had strong reservation on Equity’s acquisition of Atlas Mara
subsidiaries in Tanzania, Zambia and Mozambique given the tough
macroeconomic environment and the performance of these subsidiaries,”
said Martin Kirimi, a senior associate, research, at Standard Investment
Bank.
MARKET CONSOLIDATION
“We view
this failed acquisition as a positive development for Equity because
right now is all about having strong capital buffers to make sure that
you weather the nasty storm triggered by Covid-19.”
Equity
Bank’s net profit for the three months to March 31 fell by 14 per cent
to Ksh5.28 billion ($52.8 million) from Ksh6.15 billion ($61.5 million)
in the same period last year as a result of increased loan loss
provisioning to cushion the business against uncertainties related to
Covid-19.
“I think now they will probably have to start
from scratch and their target markets will have to change because of
the prevailing conditions. However, for the time being the bank will be
more concerned about having a healthier balance sheet than expanding its
operations,” said Daniel Kuyoh, an independent financial analyst based
in Nairobi.
Under the deal Equity bank would have
surrendered about 252.5 million new ordinary shares representing 6.27
per cent of the bank to ATMA valued at Ksh10.7 billion ($107 million).
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