How Equity Bank made record Sh40 billion profit despite pandemic

Higher yields from interest paid by borrowers and an improved business environment saw Equity Group post a record Sh40.1 billion in profit after tax last year.

The performance for the year to December 2021 had the lender nearly double its Sh20.1 billion earnings in the previous year.

Equity significantly cut the amount it set aside to cover for potential loan defaults from customers hit by the Covid-19 pandemic, commonly referred to as loan loss provisions.

The bank had provisioned Sh26.6 billion in 2020 fearing huge defaults following the pandemic, but an improved business environment boosted its confidence on loan repayments, which saw it lower the provisions to just Sh5.8 billion.

At the same time, the interest charged by Equity on its loans earned it Sh68.8 billion, up from Sh52 billion the previous year.

The bank increased lending by 23 per cent to hit Sh587.8 billion from Sh477.8 billion.

Equity also earned Sh29.4 billion in interest from government bills and bonds from Sh20.9 billion it got in 2020. Following the results, Equity Group Chief Executive James Mwangi will walk away with Sh495 million in dividends.

Equity opened the dividends tap to its shareholders after a two-year freeze which will see investors share Sh11.3 billion at Sh3 per ordinary share, a 50 per cent increase from the last dividend payout for 2018.

Largest shareholder

Mr Mwangi’s boom is the largest of any individual shareholder at Equity.

The Nairobi Securities Exchange-listed lender’s largest shareholder, Arise BV, will walk away with Sh1.35 billion.

Mr Mwangi owns 4.38 per cent of the lender’s 3.77 billion shares, while Arise BV owns 11.99 per cent or 452 million shares.

The African financial investments company is majority owned by Norwegian Norfund with a 48 per cent stake, while Dutch banks FMO and Rabobank hold a 27 per cent and 25 per cent stake in the firm respectively.

Equity Group chairman, Isaac Macharia, who owns 346,950 shares, will earn Sh1.04 million while Dr Helen Gichohi, another board director, will get Sh369,900 based on her 123,300 shares.

Digital channels

Meanwhile, private shareholders through Stanbic Nominees Ltd will bank Sh395 million based on their 131 million shares, Britam will bank Sh356 million, while Equity Bank Employee Share Ownership Plan will get Sh324 million.

About 342 individuals own shares of more than a million at Equity while 585 have 100,000 to a million.

Equity’s earnings beat rival KCB Bank’s by Sh6 billion.

While Equity’s net profits rose by Sh19.9 billion last year compared to 2020, KCB’s surged by Sh14.5 billion.

The lender raced farther ahead of the pack in its latest results, widening the gap with KCB in assets and profits while growing its loans by larger margins.

Equity also reported that its operating income increased by 21 per cent from Sh93.6 billion in 2020 to Sh113 billion last year.

KCB Bank’s operating income last year rose by 13.5 per cent or Sh13 billion.

While Equity customers deposited an extra Sh218 billion on top of the Sh740.8 billion the bank reported in 2020, KCB in 2021 reported a Sh70 billion growth in customer deposits, to record Sh837 billion.

Customer deposits at Equity grew at 29 per cent while KCB Bank registered a nine per cent growth.

“After two years of operating in a Covid-19 environment, Equity has emerged as the regional financial market leader as defined by financial parameters – balance sheet, asset size, profitability, customer base and market capitalisation at the NSE,” the lender said.

Loan book portfolio

KCB Bank remains the market leader in terms of loan book portfolio, with Sh675 billion by 2021.

However, Equity’s growth in loans was larger than KCB’s, having grown with Sh109.9 billion from 2020, compared to KCB’s Sh80.2 billion.

While non-performing loans at KCB grew from Sh84.7 billion in 2020 to Sh110.1 billion last year, Equity trimmed the figure from Sh50.6 billion to Sh44.5 billion over the same period.

“The bulk of customers’ engagement and consumption of banking products and services is now on digital channels of internet and mobile on self-service devices delivering 24-hour experience and convenience,” Equity said in its statement.

“Banking has largely shifted from where you go to what you do on your devices compressing geography and distance.”

Mr Mwangi said the bank has strengthened its participation in integration of the informal sector with formal supply chains in agriculture and SMEs.

“We have strengthened our business model to achieve an embedded shared value concept in our twin engine of socio-economic aspirations and deliverables,” he said.

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