Equity profit drops 24pc as Covid-19 hurts loan payments
An Equity Bank branch in Nairobi.
What you need to know:
- The fall in group profit was despite net interest income growing by 16.9 percent to Sh24.6 billion.
- It increased loan loss provisioning 8.7 times to Sh8.02 billion in contrast with Sh918.5 million that had been made in the preceding similar period.
Equity Group’s half year net profit has tumbled by 24.3 percent to Sh9.02 billion after the lender increased provisioning for loan defaults nearly nine times to reflect the economic hardships facing borrowers due to Covid-19.
The drop was from Sh11.92 billion posted in a similar period last year, making Equity the fourth top lender to fail to grow earnings in Covid-19 environment.
Net profit for the Kenyan unit declined by 26 percent to Sh7.2 billion to account for 80 per cent of the group’s net earnings.
The fall in group profit was despite net interest income growing by 16.9 percent to Sh24.6 billion as the Equity’s loan book expanded by Sh70.7 billion or 22 percent to Sh391.6 billion.
Loan loss provisioning
It increased loan loss provisioning 8.7 times to Sh8.02 billion in contrast with Sh918.5 million that had been made in the preceding similar period.
This was on the back of gross non-performing loans rising by Sh16.3 billion or 55.7 percent to Sh45.55 billion, pointing to deterioration in loan book quality.
“Prudence dictated that we adopt a conservative humble approach in recognising the risk of uncertainty Covid-19 has imposed on the operating environment,” said managing director James Mwangi.
Higher loan loss provisioning saw operating expenses jump by 31 percent to Sh27.1 billion to pull down the bottom-line.
Public health measures
Kenya confirmed its first case of coronavirus on March 13, setting off a series of public health measures that have hurt workers’ and companies’ earnings.
The measures included closure of hotels and bars, a ban on international travel and lockdown of counties like Nairobi and Mombasa.
Central Bank of Kenya (CBK) data showed that the measures had a major impact on earnings as the banking sector’s pre-tax profit for the four months to April dropped by 20.2 percent to Sh45.3 billion.
This was the lowest pre-tax profit in four years in four months, highlighting the impact of the infectious virus on the momentum of economic activities.
April, the first full month of Covid-19 impact, was particularly bad as banks’ pre-tax profit fell 46 percent to Sh6.9 billion.
