Equity Group emerges resilient amidst multiple crises

Equity Group has returned strong quarter one results in a challenging environment marked by the multi-faceted Covid-19 crisis of economic disruption plus health and humanitarian challenges. The results signal resilience and recovery.

“Our strategy of purpose-first, inclusivity, affordability, reach, agility and quality, has proven resilient and sustainable,” said Dr James Mwangi, the Equity Group CEO, while releasing the financial results of the first quarter of 2021. “Purpose has proved profitable,” he added.

During the multi-crisis year, Equity focused on social impact investment in health, putting in Ksh1.7 billion in social response to society, forgoing Ksh1.5 billion in waived mobile transaction fees, waiving Ksh1.2 billion in loan rescheduling fees and accommodating Ksh171 billon (or 31 percent) of the loan book for up to three years of principal and interest repayment breaks to enable businesses to survive. “We kept the lights of the economies we operate in on, helped businesses to repurpose, retool and recover by supporting livelihoods of our customers during the crisis”, said Dr Mwangi.

He added: “We have adopted a two-pronged strategy of being offensive and defensive. We strengthened our capital buffers by retaining profits and withholding dividend pay-outs, took long-term loan facilities that strengthened our liquidity buffers, supported host communities and our clients to mitigate the impact of the crisis on them by waiving fees and rescheduling their loans to match loan repayments to new cash-flow patterns. Internally, we focused on risk mitigation and management in a challenging environment, enhanced our NPL coverage through provisions and sought collaboration with development financial institutions on credit and risk sharing guarantees. We evolved our organisation structure through strong governance focus on risk management, diversity of skills and competencies to enhance our succession planning and mitigation of key person risks”, added Dr Mwangi.

Operationally, the Group focused on generating and growing non-funded income, treasury efficiency, geographical expansion and business diversification, business transformation through innovation and digitisation, balance sheet optimisation and agility, asset quality and risk mitigation, while pursuing efficiencies and brand development through social impact investment.

Interest income grew by 32 percent while non-funded income grew by 30 percent to contribute 42 percent of total income. Regional subsidiaries registered resilience and robust growth to contribute 40 percent of total deposits and total assets, and 23 percent of profit before tax, with Rwanda and Uganda delivering above cost of capital returns.

“Evolving economic, social, political governance reforms and environment have strengthened prospects for long-term sustained regional growth and investment. These, coupled with development of physical and soft infrastructure, enhance opportunities for private sector credit growth and productivity gains from cross-border trade,” said Dr Mwangi.

The Group registered a balance sheet expansion of 54 percent to reach Ksh1.07 trillion, driven by a 58 percent growth in customer deposits, underpinned by Ksh140 billion shareholders’ funds. A liquid balance sheet with Ksh500 billion of cash, cash equivalents and government securities, reflect the agility to redeploy funding seamlessly as the economies recover from the adverse impact of the Covid-19 multi-crisis.

The Group took advantage of consumers’ lifestyle changes that acted as a tailwind to human adoption of technology, resulting in change in consumer lives and behaviour. The Group changed its strategy to adapt to the changing environment and executed a rapid business transformation that saw 98 percent of all transactions being digital in count, and 65 percent of volume by value. “Over the last one year, we have witnessed first-hand as our customers adopted our mobile and internet technology channels on self-service devices, making our financial services offering truly a 24-hour service and lifestyle,” said Dr Mwangi.

He added: “The business has seized the moment and fast-tracked transformation by investing and deploying fintech capabilities of biodata, artificial intelligence, machine learning, analytics and algorithms to support customer personalised product and services, offering wide lifestyle capabilities and global reach and presence.”

Strong focus on asset quality saw the Group develop an investment portfolio mix that resulted in a market and sectoral diversification across currencies and different geographies. The Group reported a non-performing loan book of 11.3 percent, compared to the industry average of 14.6 percent. Strong risk mitigation saw NPL coverage stand at 99 percent from a mix of provisions at 87 percent and 12 percent of credit risk guarantees.

Of the 31 percent of the loan book, or Ksh171 billion Covid-19 accommodated or rescheduled loan book, Ksh59 billion has resumed repayment with Ksh5 billion fully repaid and Ksh3 billion behind schedule in repayment. Repayment of Ksh66 billion is expected to resume by September 30, 2021.

On efficiency and cost optimisation, the regional subsidiaries continue to gain momentum with marked improvement in cost to asset ratio and cost to income ratio, and significant balance sheet and revenue growth.

The Group’s brand popularity is soaring on account of our social engagement through our purpose-first strategy of shared prosperity, evidenced by Wings to Fly and Elimu scholarships, Equity Afia health services, environmental protection through tree planting and clean energy product offering, empowering wealth creation through financial literacy and entrepreneurship development services, and social safety net programmes.

Boosted by market leadership position in terms of balance sheet; market capitalisation; customer base; capital base; and reinforced by the accelerated adoption of technologies by customers, a society seeking multi-sensory engagement, shared prosperity, purpose-first business models, the Group has reviewed its 2021 performance outlook upward to a return on equity of between 25 percent to 30 percent, and return on assets of between 3.6 percent to 4.3 percent in an environment predicted by the World Bank and IMF to recover quickly.

The experience over the last three years of adoption of IFRS9 and riding the tide of Covid-19 multi-crisis has brought forth the strength of the Group’s strong risk management culture of boldness, decisiveness and prudence. On account of the differentiated management decisions last year, the Group has emerged resilient with a strong foundation that gives hope and confidence of strong future performance as reflected by strong top-line revenue growth.

From the lessons of the disruption of its previously unbroken track record of paying out dividends since its listing in the stock exchange, the Group formulated a capital allocation, value creation and distribution policy that guarantees a dividend pay-out of between 30 percent to 50 percent of its profit after tax and institutionalised the policy by the creation of an executive position in charge of capital allocation and value creation.