Equity Group registers strong recovery

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Equity Group registers strong recovery
Equity Group Chief Finance Officer Moses Nyabanda, Managing Director and CEO, Dr. James Mwangi and Chief Internal Auditor Beth Kithinji during the Q1 2024 Investor Briefing event.

The performance is a relieving rebound after Equity reported a 5 percent decline in profit after tax for the year ended December 31, 2023.

BANKING | Equity Group Holdings has registered a strong first quarter results, with profit after tax for the period ended March 31 growing by 25 percent to a record Kshs16 billion (about Shs462 billion) compared to the same period last year.

The performance is a relieving rebound after Equity reported a 5 percent decline in profit after tax for the year ended December 31, 2023.

While releasing the results, Dr James Mwangi, Equity Group managing director and CEO said the recovery momentum is strong after accepting and adapting to the new normal of operating in an environment characterized by volatility, uncertainty, complexity and ambiguity.

"This is an environment defined by high inflation, interest rates and volatile currency exchange rates,” Dr Mwangi added.

In a statement, Equity Group credited the performance to the "differentiated strong leadership decision making", and an agile balance sheet that is said drove the swift recovery.

"Bold decisive actions saw growth in deposits placements to 11 percent compared to the deposits growth of 29 percent registered for the year ended December 2023, as the Group skipped expensive deposits," the bank said.

However, it noted that growth in long-term borrowed funds saw a decline of 21 percent year-on-year for the period ended March 31, as the Group paid out maturing repriced expensive dollar denominated loans.

Equity Bank Holdings Ghas banking subsidiaries in Kenya, Rwanda, Uganda, South Sudan, Tanzania, and DRC and a representative office in Ethiopia.

In its relentless execution of the Africa Recovery and Resilience Plan, the Group has successfully transformed from a Kenyan banking leader to a regional systemic financial services leader.

The Group boasts of being in the top five position in five out of six countries it operates in, with operations in three of the countries being the top two market leaders.

The regional banking subsidiaries contributed 63 percent of the Kshs20.4 billion profit before tax with a return on average equity of 27.6 percent, cementing the Groups position as the regional banking leader.

The Group said growth in total costs declined from 52 percent for the year to December 31, 2023, to a growth of 28 percent for the period to March 31.

This, it credited efficient pursuits at the operational level, noting that the decline in total costs effectively improved cost to income ratio for the period to 47.1 percent from the above average recording of 52.3 percent at the end of December 2023.

"Digitisation and automation of processes has significantly enhanced convenience and ease to customers in self-serving using own devices and third party infrastructure which has shifted the cost structure of the Group from fixed cost to variable costs,' the Group said.

Equity Group Chief Operating Officer, Samuel Kirubi, Equity Group Managing Director and CEO, Dr. James Mwangi and Equity Group Chief Finance Officer, Moses Nyabanda, during the Q1 2024 Investor Briefing event.

Plugging credit risk

One of the major migraines for financial institutions world over is the credit risk that comes with high non-performing loans environment.

Equity Bank Group says it made deliberate efforts to enhance credit risk underwriting and the result was a 3 percent year-on-year growth in loan book as at March 31, compared to a 26 percent as at last December.

For the Group, it led to re-allocation of lending from private sector credit to public sector lending through government securities, which grew to 21 percent.

"Consequently, the cost of credit risk dropped to 2.9 percent for the period to March 31 from 4.4 percent for the year ended December 31, 2023," the Group said.

As deliberate decisions and actions stabilise the internal operating environment while adjusting strategic intents to new scenarios of the new normal, the external operating environment continued to experience volatile, complex, uncertain, and ambiguous macro-economic turbulence of extreme volatility in currency exchange rates and high interest rates and inflation.

The resultant business shocks saw balance sheet growth slow down to 10 percent compared to 26 percent registered for the year ending 31st December 2023.

Loan uptake year-on-year grew at 3 percent compared to 26 percent for December 31. Customer deposits growth matched the decline on balance sheet growth to record 11 percent compared to 29 percent as at December 31, 2023.

The Group noted that there were early signs of calmness in the global macro environment are visible with declining inflation, peaking of interest rates and early signals of green shoots.

The Group’s market to market losses have reduced to Kshs48.4 billion from a high of the Kshs78 billion registered in third quarter of 2023, while its liquidity stood at 52.1 percent with a balance sheet of Kshs1.69 trillion nearly split equally between a loan book of Kshs779 billion and liquid assets of Kshs752 billion.

Equity Group said its strategy to evolve with the needs of its customers and the economies it helps to connect and integrate has led to business diversification beyond financial inclusion by diversifying offering and moving up the value chain as it scales and connects fragmented supply chains and trade routes.

"As a result of business and product diversification, non-funded income contributed 43.9% of the total income of Kshs49.6 billion at Kshs21.8 billion," it said.

The new life insurance business took a strong start with robust growth in its second year of operations. Profit after tax grew 106 percent to Kshs321 million while total insurance assets grew by 288 percent to close at Kshs20.8 billion.

"This confirms that there is a significant opportunity in insurance by providing relevant, innovative and technology driven solutions to the underserved," the Group noted.

In its second year of operations, the life insurance subsidiary has risen to the fourth position in the industry in Gross Written Premiums with 9 percent market share and number two position in Group Credit Business with an 18 percent market share.

Life insurance also ranks fourth on profitability and seventh in size in terms of total asset and provided the highest in Return on Equity as at December 31, 2023.

Equity Brand has been a story of evolution from purpose driven financial inclusion to provide dignity and change lives while expanding opportunities for wealth creation using financial tools.

It is a story of social and economic transformation of Kenyans. Over time, as the brand evolved, the brand became a regional brand and went beyond banking to include insurance and technology while the social arm evolved to include environment, governance, and nature.

Today, the Equity brand operates on a twin engine, a sustainability engine and an economic engine propelled by a strong purpose to transform Africa through the Africa Recovery and Resilience Plan.

Globally, the brand has been recognised as the world’s second strongest financial brand while regionally the brand is rated Africa’s strongest banking brand and East Africa’s most valuable brand.

The brand has won the Oslo Business for Peace Award “The Business Nobel Prize” as its commonly referred to, the Global Vision Award with the caption “Initiator of a concept of the future that will change the global economy”.

It also prides in the Ernst & Young world Entrepreneur Award, the Forbes Africa Persons of the Year, Bloomberg top 50 and Financial Times top 50 thought Leader.

Equity Group said it has embarked on a unique opportunity of matching commercial and operational capabilities to match the global brand through systems and processes re-engineering, product house and people competencies that deliver on customer value proposition that match the global brand within the robust governance and strategic plan.

"As the global macro-economic headwinds break and paves way for the global recovery, Equity Group is strategically and uniquely positioned to tap into the growth potential of the opportunity of East Africa's thriving eco-system of trade connections, under the common market protocols and the Africa Continental Free Trade Area," it said.

The region is a key destination for global remittances, holds significant mineral deposits and arable land and has 63 percent of its population being below the age of 24 and has reasonably developed physical and soft infrastructure.

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