Equity Group Holdings profit after tax for the first quarter 2020 plummeted 14%, pulled down by a tenfold increase in loan loss provision.
According its financial results released on 28th May 2020 bad loans provision ballooned to Ksh3 billion from Ksh300 million the previous year, slashing net profit to Ksh5.3 billion, from Ksh6.2 billion the same period last year.
The first-quarter results partly reflect the uncertainty created by COVID-19. Profit before provisions was up by 10% to Ksh10 billion from Ksh9.1 billion the previous year.
Corona effect?
Dr James Mwangi, Group Managing Director and CEO of Equity Group Holdings said the global COVID-19 pandemic has mutated into a global economic crisis, occasioned by a sudden standstill of economic activity as a result of the lockdown. “This has introduced unprecedented uncertainty within the global financial systems prompting us to adopt a conservative approach – fortifying our balance sheet and assuring ample liquidity to support our customers,” Dr Mwangi said.
The Group continued to enjoy robust growth with total assets registering a 14% year on year growth to Ksh693.2 billion from Ksh605.7 billion driven by a 17% growth in customer deposits to Ksh499.3 billion from Ksh428.5 billion. Net interest income grew by 11% on the back of a 24% growth on loan book to Ksh379.2 billion up from Ksh305.5 billion, which reflected strain with the non-performing loan book growing to 10.9% up from 9.1% the previous year.
Aggressive provisions saw the cost of risk rising to 3.24% up from 0.37%. The Group’s total income grew by 13% to Ksh19.7 billion up from Ksh17.5 billion for the same period last year. Non-funded income grew by 16%, outpacing the 11% growth on net interest income thereby increasing its contribution to 42% of the Group’s total income. Forex trading income grew by 34% to Kshs. 1.1 billion up from Kshs. 815 million with 26.5% of the volume traded contributed by diaspora flows.
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Diaspora remittances commissions grew by 22% to Ksh234 million up from Ksh192 million the previous year with the volume of diaspora remittances growing by 31% to reach Ksh40.6 billion up from Ksh30.9 billion the previous year.
The Group continued to register impressive progress in transforming itself from the place you go to something you do on devices.
Equity has restructured customers’ loans of up to Ksh92 billion for up to three years as an economic relief effort to the COVID-19 crisis.
The brick and mortar infrastructure of branches and ATMs processed only 6% of the Group’s banking transactions, while mobile and internet banking processed 79% of all transactions, with agents and merchants processing 15% of transactions, making the Group an increasingly virtual digital financial service provider.
The Group’s regional and diversification subsidiaries registered impressive results with a return on equity of 18.7% against the Kenyan banking subsidiary return on equity of 21.6%. The subsidiaries increased their total revenue contribution to the Group’s revenue to 30% up from 28% the previous year, while raising their contribution of profit before tax to 26% of the Group’s profit up from 17%.
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The Group stands well positioned to confront the challenges of the COVID-19 disruption. The Group’s business model of high-volume low margins with nonfunded income contributing 42% of total income and a low cost of funding of 2.8%, allows it to ride a compression of margin in interest earning assets.
“A strong capital and liquidity position give us the strength and capacity to cushion our business against external shocks and accommodate and walk with our customers during these challenging times,” said Dr. Mwangi.
Restructured loans
He added that Equity has restructured customers’ loans of up to Ksh92 billion for up to three years as an economic relief effort to the COVID-19 crisis.
“We will walk with our clients through this crisis and will give every client a chance to turn the crisis into an opportunity to thrive. Equity Group will deploy its capital strength, balance sheet agility and liquidity to support a long-term view,” said Dr Mwangi.
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