Equity Group Holdings Plc has once again recorded and increase in profits despite the upheavals of the interest rate cap regime. The lending behemoth has reported a 22 per cent increase in profit after tax in the first quarter of 2018 financial year. The profits have risen from Ksh 4.9 billion in Q1 2017 to KSh 5.9 billion in Q1 2018.
Compared to her peers, Equity Bank is the only bank that registered increase in profits post interest rate cap regime in the year ended 2017. The CEO of the bank Dr. Mwangi attributes this to the business model that they adapted to enable them survive after the interest rate cap law was introduced.
The bank resorted to focus on three key areas to remain profitable; Non-funded income, treasury and geographical and business diversification.
Tracking down the performance of Equity Bank before the interest rate cap law was introduced, it is clear that the market leader was hit and is on a recovery path. In Q1 2016 Loan Interest Income stood at KSh 11.3 billion this reduced to KSh 8.2 billion in Q1 2017. The Loan interest income has increased this year to KSh 8.8 billion. They look forward to going back to where they were before the interest rate cap law was introduced.
From the Q1 2018 results, Innovation and Digitization revolution impact is clear. Mobile banking transactions amounted to 108.8 million, Agency banking was at 17.3 million while ATM, Branch and E-Banking transactions had 10.6 million transactions. “This has transformed the cost structure of the bank from fixed cost to variable cost with minimal investments.” reads the investor briefing report.
The use of Universal POS that converge Mobile Wallets, Cards & digital payments has seen Diaspora remittances and foreign exchange transactions such as paying school fees outside the country increase. “Diaspora remittances have grown six fold with fintech innovations from 3,247 to 18,627 transactions.” Said Dr. Mwangi in the investors briefing.
Innovation has lead to having two banks in one; a virtual bank through digital innovation and brick and mortal banking at the branches. Of the 100 per cent transactions made through the bank, only 3 per cent of it took place in the branches. “Branches are now handling high value transactions for SME, corporate, wealth management & advisory services.” reads the investor briefing report.
The group is fully compliant with IFRS 9 provisions. With the Ksh 265.3 billion loan balances, IFRS 9 provision made by the bank for this loan stands at KSh 9.8 billion. The IFRS 9 provision affects the capital of a bank but not the profits of the bank. Equity Group has an agile, flexible balance sheet characterized by 56 per cent liquidity.
Speaking at the Investors briefing, Dr. Mwangi strongly stated that for the economy to grow, there is dire need to repeal the interest rate law cap. He explained that it has limited credit for the private sector thus limiting economic growth that would result when the sector has access to credit.
Equity Group subsidiaries in Uganda, Tanzania, Rwanda and in the Democratic Republic of Congo (DRC) are on a growth path. They contributed 19 per cent of the Profit before Tax of the group, a 5 per cent increase compared to Q1 2017.
At the event, Dr. Mwangi noted that Mary Wamae, Group Director of Corporate Strategy & Company Secretary was appointed by the Equity Group board as the Executive Director and is now overseeing all subsidiaries.
The bank’s philosophy of shared prosperity continues to be pronounced through its social investments programs where it has allocated KSh 3.5 billion. 55 per cent of this was used in Wings to Fly Program, 34 per cent to the Leadership Program, 6 per cent to Financial Education and Entrepreneurship. The other 1, 3 and 2 per cent was allocated to Agriculture, Health and Energy & Environmental Conversation respectively.
Equity Group is very optimistic, from their 2018 Outlook; they look forward to grow their loan book by 10 to 15 per cent, their deposits by 5 to 15 per cent and their Return on Equity by 22 to 25 per cent.