Equity’s net profit dips 6.4pc on bad loans provision

James Mwangi

Equity Group CEO James Mwangi during the announcement of the bank's 2023 financial results at the investor briefing at Equity Centre in Nairobi on March 27, 2024.

Photo credit: Wilfred Nyangaresi | Nation Media Group

What you need to know:

  • Bank refrained from adjusting base interest charge on personal loans.
  • Equity has been betting on the regional units to grow its business.

Equity Group’s net profit for the year ended December 2023 fell by 6.48 per cent to Sh41.98 billion after the lender doubled its provisioning for bad loans in the period.

The bank maintained its dividend for the year at Sh4 per share — or a total payout of Sh15.1 billion —despite the fall in net profit.

Provisions for bad debt rose to Sh35.25 billion from Sh15.4 billion in 2022, reflecting a jump in its gross volume of bad loans to Sh114.6 billion as of December 2023 from Sh63.13 billion in 2022.

The bank’s chief executive officer James Mwangi said that the lender decided to raise its provisioning in the last quarter of the year, identifying real estate, manufacturing, transport and logistics sectors as the key drivers of non-performing loans (NPLs).

There was also a rise in NPLs from companies waiting for payment from the government, reflecting the knock-on effect of the State’s pending bills on the wider economy.

Mr Mwangi added that the bank also refrained from adjusting the base interest charge on personal loans that were active as of January 2023 even as the Central Bank of Kenya raised its base rate progressively to 12.5 per cent by the end of the year.

Personal loans

“Despite the rise in cost of funding, we did not adjust the base rate on personal loans equivalent to 32 per cent of our loan book, effectively keeping them at 13 per cent. This means that our interest income grew at nearly half the pace of interest expenses,” said Mr Mwangi.

Equity’s loan book went up by 26 per cent to Sh887.4 billion, while customer deposits rose by 29 per cent to Sh1.36 trillion. Net interest income rose by 21 per cent to Sh104.2 billion, while non-funded income was up 30 per cent to Sh75.9 billion.

The bank’s costs rose by 57 per cent to Sh178.2 billion, mainly due to the higher provisioning for bad loans.

The Kenyan operation accounted for the bulk of NPLs at 69.6 per cent in 2023. It also accounted for the lion’s share of new provisions, with its local loss cover going up to Sh22.98 billion from Sh7.84 billion in 2022.

The Kenyan unit’s contribution to the group’s net profit stood at Sh26.7 billion, down from Sh33.4 billion in 2022.

Regional units

Equity’s regional subsidiaries grew their contribution to the bank’s net profit by a third to Sh15.3 billion in the year to December 2023, cutting the dominance of the Kenyan unit.

The bank’s DRC operation’s net profit contribution doubled to Sh12.1 billion from Sh5.8 billion in 2022.

Equity Bank Rwanda saw its contribution rise to Sh4.2 billion from Sh2.8 billion, partially boosted by the integration of Cogebanque in December after the conclusion of the acquisition of the Rwandese lender in November 2023. 

Equity has been betting on the regional units to grow its business — particularly the DRC subsidiary — seeing them as having more headroom for growth due to their lower bank account penetration ratio compared to Kenya.

“The group is no longer challenged by a single sovereign risk. This is now well spread within the six countries within which we operate,” Mr Mwangi said.

“The critical thing is how we are performing in DRC. We spoke in the past that the DRC operation would at some point challenge Kenya, and evidence is now on the table, based on how it has performed in terms of return on assets,” he added.