Equity Group posts 29% on the back of success on regional expansion and strategic initiatives
10th March, Nairobi………Regional Financial services firm Equity Group announced a 29% growth in Profit after Tax for the year ended December 2014 in its’ financial results released today.
Equity Group CEO & MD Dr. James Mwangi, while releasing the results attributed the positive performance to significant early successes of the new strategic initiative ‘Equity 3.0’ geared towards stabilization of earnings growth through diversification and reduction of the impact of the volatility associated with cyclic nature of interest income.
Group Profit after Tax stood at a record Kshs.17.2Billion up from Kshs.13.3Billion posted the previous year. Profit before tax grew by 18% to stand at Kshs.22.4Billion up from Kshs.19Billion.
The Group’s performance was supported by strong underlying fundamentals including a 24% growth in the balance sheet size to Kshs.345Billion up from Kshs278Billion in 2013 primarily driven by a 26% growth in customer deposits to Kshs.245.6 Billion up from KShs 194.8Billion. Effective intermediation resulted into a corresponding growth of 25% in net loans and advances to Kshs.214.2Billion up from 171.4Billion while customer accounts grew by 1.2 Million new customers raising the customer base to 9.6 Million up from 8.4 Million customers in 2013.
All the subsidiaries across the region recorded improved performance which resulted in an increase of 346% in the consolidated profit contribution from Rwanda, South Sudan, Tanzania and Uganda to the Group to Kshs.1.07Billion in the period up from Kshs.240 Million the previous year. Deposits and net loans in the regional subsidiaries grew by 48% and 36% respectively.
During the period, the Group successfully completed its reorganization which saw the creation of a listed non- operating holding company ‘Equity Group Holdings Limited’ following the hiving off of the banking business in Kenya to a new subsidiary ‘Equity Bank Kenya Limited’. The restructuring and other related one off set up costs impacted the cost income ratio adversely resulting in an increase in the cost income ratio from 48% to 52%. The overall impact of the non-recurring expenses of KShs 800Million was nevertheless offset by a gain of KShs 1.1Billion realized on disposal of the Group’s shares in Housing Finance. The re-organization which is another first in the market by the Group enhances the capital utilization within the organization as well as de-risks the subsidiaries from each other.
While the loan book grew by 24%, the increase in interest income was impacted by reduction in margin spreads attributable to a combination of increasing proportions of loans to SMEs and large corporates - up from 62% in 2013 to 67% - as well as lower margin spreads of USD denominated loans whose share of the loan book increased from 18% in the previous year to 25%.
The impact of the pressure on interest income was mitigated by deliberate aggressive adjustments in the funding profile of the Bank which resulted in containing the increase in interest costs to 15% against a growth of 26% in deposits. This was largely achieved through the reduction of the proportion of term deposits in the Bank’s total funding from 18% to 13%. The average cost of funds was contained at 2.5% (2013: 2.6%).
Consequently net interest income grew by 11% against declines in yields from 14.6% to 13.9% and net interest margin from 12% to 11.4%. Dr. Mwangi observed that non-funded income over the last 3 years has increased its proportion of income from 35% to 39% demonstrating results from successful implementation of strategic initiatives on remittances, merchant banking and transaction processing diversifying the Group’s income sources while at the same time reducing income volatility associated with interest income and cyclic provision expense.
Other incomes grew by 19% driven mainly by 66% growth in merchant and payment processing commissions , a 28% growth in foreign exchange income and remittance processing fee and 25% growth on fees on loans.
Non-performing loan coverage excluding collaterals was enhanced from 72% to 88% as the non-performing loan book improved by 100 basis points from 5.2% to 4.2%.
Total capital to risk weighted assets stood at 17.3% against a statutory minimum requirement of 14.5% while core capital to risk weighted assets stood at 14.8% against a statutory minimum of 10.5% reflecting the Group’s strongly capitalization status.
The net effect of a very successful year was improvement on Return on Average Equity from 28% to 30% and Return on Assets from 5.1% to 5.5%.
Proposed dividends for the period are up 20% from Kshs.5.5Billion to Kshs.6.7Billion.
Dr. Mwangi observed that innovation continues to be a key pillar of the Group’s strategic initiatives noting that hardly a few years since its introduction, the agency network of 17,523 agents now processes 43% of all customer cash transactions compared to branches and ATMs which process 33% and 24% of the transactions respectively. Dr. Mwangi said he was optimistic that the new Equitel mobile channel will be equally popular with the market noting early signs of rapid uptake in Kenya where 420,000 subscribers effected over 5.5 Million transactions through the channel in the month of December alone.
The results attest to Equity’s rating and ranking. In 2014 Equity was rated by Global Credit Rating (GCR) as AA – long-term and A1+ with a stable outlook. Globally among the Top 1000 banks in the world, Equity Bank was rated the 4th Best Bank in Return on Assets and 8th Best Bank in Return on Capital and the Best Bank in Africa on both accounts for 2014 by “The Banker”.
Locally, Equity in 2014 was ranked the Top Banking Brand in Kenya by Qudal; Bank with the Lowest Charges and Best Bank in East Africa by Think Business. Equity was also awarded the 2014 MF Transparency seal of Price Transparency Award.
“Time seems to be fast approaching when banks may not necessarily continue to exist as they are constituted today even though banking services will undoubtedly continue to be required.” said Dr. Mwangi. “Equity Group’s innovations are informed by this reality and are geared towards supporting banking becoming something you do, as opposed to somewhere you go to transact. Our members are increasingly gaining more freedom, choice and control” added Dr. Mwangi.
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Equity Bank Group
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