Equity To Offload Ksh.222 Billion From Treasury Bonds

 

Equity Group Managing Director James Mwangi during a past function.

By Kepha Muiruri For Citizen Digital

Lender Equity Group has outlined that it intends to offload part of its government security holdings in its bid to disburse more loans to the private sector.

The bank targets to bring down its share of government securities which are mainly represented by Treasury bonds to at least 18 per cent of its deposits.

Currently, Equity’s stock of government securities stands at Ksh.394.1 billion or a representative 41 per cent of the lender’s deposits.

“Traditionally, Equity operates with 18 per cent of its deposits allocated to Treasuries. At the moment our allocation is around 40 per cent. This is because at the moment, the market uptake of our loans has not been matched by growth in deposits,” said Equity Group Managing Director James Mwangi.

Equity Group net loans and advances to customers at the end of the year to December 2021 rose by 23 per cent to Ksh.587.8 billion to grow slower than deposits which were up 29 per cent at Ksh.959 billion.

According to the bank, deposits have doubled from half a billion shillings to just under Ksh.1 trillion while deposits have only moved at less than half the pace from Ksh.400 billion to Ksh.600 billion.

Even so, Equity has lent out funds to the government at four times the rate it does to the private sector with the accumulation of Treasuries rising by 81 per cent to Ksh.394.1 billion in the past year.

This means that for every shilling lent out to the private sector, Ksh.4 has been packed in government debt instruments.

Besides the higher rate of return from government securities, Equity says the demand for credit by private actors has been dampened since the entry of the interest rate cap regime in late 2016.

“Initially, the low demand was triggered by interest rate capping where we could not price customers on risks. Hopefully in the next two years, we will be able to have re-allocated funds from Treasury bonds,” added Dr. Mwangi.

Equity’s off-loading of Treasuries is expected to find further impetus from its recently approved risk-based pricing model which will allow the bank to lend to a wider customer base.

Equity has set new interest rates at between 13 per cent and 18.5 per cent.

The approval is further set to lift the bank’s net interest margins unlocking yet another chapter of growth for the lender which posted a Ksh.39.2 bilion net profit on Tuesday.