Equity maintains dividend payout as profit drops 5pc on loan provisioning

Equity Group Managing Director and CEO Dr James Mwangi during an investor briefing in Nairobi, Kenya on November 20, 2023. PHOTO | NMG

By JAMES ANYANZWA

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Equity Group maintained a dividend payout of Ksh4 ($0.03) per share for the

financial period ended December 31,2023, despite its net profit falling by five percent.

The Nairobi Securities Exchange (NSE)-listed lender posted a profit after tax of Ksh43.7 billion ($331.06 million), from Ksh46.1 billion ($349.24 million) in 2022, according to its audited financial statements.

The bank’s earnings were, however, lifted by contributions from regional subsidiaries, including a turnaround of the Tanzanian operations.

“We are down five percent, simply because we decided to maintain 32 percent of our entire loan book at an interest rate of 13 percent while funding the bank at 18 percent,” Group chief executive James Mwangi told an investor briefing in Nairobi.

The subsidiaries’ contributions to the Group’s profit before tax and profit after tax stood at 55.6 percent and 44.4 percent respectively.

The Kenyan unit recorded a 20 percent decline in net earnings to Ksh26.7 billion ($202.27 million), from Ksh33.4 billion ($253.03 million) during the period under review.

Read: Equity regional units grow profit contribution to $116m

The Group more than doubled its provisions in the Kenyan subsidiary to Ksh32.8 billion ($249.43 million), from Ksh13.7 billion ($104.18 million), increasing coverage of non-performing loans to 90 percent, as it moved to clean up its books to prepare the integrated financial services for the next phase of growth in the region.

“We decided to derisk the future by taking Ksh32.8 billion ($249.43 million) in provisions to ensure that it is a clean start. We decided to be prudent in provisioning.

There is no fundamental change in Equity; it is prudence, it is risk management, taking the hit and closing the chapter of a challenging, turbulent macroeconomic environment, and looking to the future confidently,” Mr Mwangi said.

It maintained an interest rate at 13 percent to cushion civil servants and other salaried workers on loans disbursed prior to the implementation of the risk-based lending model in January 2023. These loans estimated at $2.15 billion (32 percent) currently attract between 20 percent and 24 percent.

“This is the 40th year of Equity, and it was not asking too much to shield and to protect our customers from the adverse effects of inflation and as a result 32 percent of our entire loan book didn’t reprice and as a result our interest income grew under the rate of interest expense,” Mr Mwangi said.

Loan loss provisioning is an accounting term that creates a liability or an expense in the company’s financial statements. It involves analysing risks and uncertainties and estimating the potential loss that may arise in the future.

Provisioning is done to ensure that financial statements accurately reflect the company’s financial position and are transparent and reliable to stakeholders, such as investors and creditors.

The Group’s Ksh15.1 billion ($114.39 million) dividend payout amounts to 34.55 percent of its Ksh43.7 billion ($331.06 million) net profit made during the period.

Equity has operations in six countries — Kenya, Uganda, Tanzania, South Sudan, Rwanda and the Democratic Republic of Congo (DRC) — and a representative office in Ethiopia.

Read: Equity casts net for more M&As across East Africa

“We see a significant upside opportunity in East Africa and we feel Equity Group is uniquely positioned to tap into this growth,” Mr Mwangi said. “We have strategically positioned ourselves to be the bank of East Africa of tomorrow. The East Africa of tomorrow is very different from the East Africa of today.”

The Group’s subsidiary in DRC posted 108.62 percent growth in net profit to $91.66 million, from $43.93 million) while that of Rwanda increased by 50 percent to $31.81 million, from $21.21 million.

Equity Bank Tanzania’s net profit increased by 35 percent to $4.54 million, from $3.03 million.

The Ugandan and South Sudan subsidiaries reported a 59 percent and eight percent decline in net profit to $6.06 million and $15.9 million, respectively, from $15.15 million and $17.42 million.

The Group’s total income increased 25 percent to Ksh180.1 billion ($1.36 billion) while total costs grew 52 percent to Ksh128.2 billion ($971.21 million), from Ksh84.5 billion ($640.15 million).

Interest income grew by 30 percent to Ksh155.6 billion ($1.17 billion) from Ksh119.6 billion ($906.06 million), while interest expense grew 53 percent to Ksh51.4 billion ($389.39 million) from Ksh33.6 billion ($254.54 million).

Customer deposits grew 29 percent to Ksh1.35 trillion ($10.22 billion) from Ksh1.05 trillion ($7.95 billion) while net loans increased 26 percent to Ksh887.4 billion ($6.72 billion) from Ksh 706.6 billion ($5.35 billion).

Total assets grew by 26 percent to Ksh1.82 trillion ($13.78 billion) from Ksh1.44 trillion ($10.9 billion).