Equity Group CEO James Mwangi poses for a group photo with management and staff at Equity Centre, Upper Hill, Nairobi.

Equity Group Holdings Plc posted a growth of 11% in assets to reach KShs 518.2 billion at 30th September 2017 up from Ksh 468 billion at the same period last year. The growth was mainly driven by customer deposits which rose to Ksh 368.8 billion from Ksh 331.4 billion, an 11% growth at the Group level.

The Group maintained resilient performance in a very challenging economic environment occasioned by protracted presidential elections which have caused political uncertainty and adversely affected all sectors of the economy. Other adverse factors include prolonged drought driving food inflation and stressing disposable incomes as well as reduced private sector growth arising from interest rate capping.

The banking sector in Kenya has also been experiencing turbulence reflected in low asset quality, liquidity and solvency challenges, and contracting cash circulation. In order to mitigate against the prevailing economic uncertainties and shocks of the temporary headwinds in Kenya, the Group enhanced its liquid assets in Kenya to achieve a liquidity ratio to 54.8% up from 45% in a similar period last year.

The Group continued its pursuit of a robust and adaptive strategy. Non-funded income grew by 28% from Ksh 16.6 billion to Ksh 21.3 billion offsetting the effects of reduced interest income. Total Income for the nine months period ended 30th September at Ksh 48.7 billion was at par with Ksh 48.9 billion for
the same period last year.

Dr Mwangi explained: “The Group progressed further in its initiative to grow non-funded income and achieved a ratio of funded to non-funded income of 56:44 in the current period against a ratio of 66:34 over the similar period last year. Non-funded income growth was achieved through mobile banking commissions which grew by 135% to Ksh 949 million; Trade Finance which grew by 39% to KSh 867 million; Forex income growth of 13% to Ksh 1.7 billion; Merchant banking commissions increase of 12% to Ksh 892 million; Agency commission growth of 23% to Ksh 628 million and similar positive trends in
income from credit card commissions and remittances from diaspora.”

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The Group’s focus on quality and efficiency saw investment in non-risk assets grow by 37% from Ksh 93.1 billion to Ksh 127.7 billion with improved yields of 11.4% up from 10% last year. The loan book declined marginally by 2% from Ksh 271.4 billion to Ksh 265.4 billion.

Despite interest income on loans and advances in Kenya declining by 36% from Ksh 28.5 billion to Ksh 18.3 billion, a growth of 113% in interest income from government securities in Kenya and a growing high yielding loan book in the regional subsidiaries offset the combined effects of capping of interest rates, contraction of interest yields and a reduction in the loan book in Kenya to limit the decline in interest income at 11% from Ksh 39.8 billion over the period last year to Ksh 35.4 billion.

Dr Mwangi said the Group’s regional expansion continues to pay off. He added; “The subsidiaries in Uganda, Rwanda, South Sudan, Tanzania and DR Congo collectively increased their profit by 53% YoY and enhanced their contribution to the Group from 7% to 10% and increased their proportion of loans and deposits in the Group from 20% to 23%.”

Liquid assets in cash, cash equivalent and government securities grew by 33% to reach Ksh 202.5 billion up from Ksh 151.8 billion strategically positioning the Bank to take advantage of opportunities that would come with the dissipation of the prevailing headwinds.

Focus on asset quality helped the Group attain a non-performing portfolio ratio of 7.4% against an industry average of 10.7% as at August 2017 with a reduced cost of risk of 1.41% down from 1.63%.

The Group’s innovation and digitisation strategy led to 91% of all transactions moving from the fixed cost delivery channels of brick and m****r of bank branches and ATMs to variable cost delivery channels of mobile, internet, mobile App, Agency and merchant banking. Of the total 341.3 million monetary transactions, only 30.3 million transactions passed through the branches and ATMs with the rest, 311 million transactions passing through the third-party channels. This shift in delivery channels resulted in a reduction of 11% in staff costs while registering a modest increase of 2% in total costs maintaining a cost income ratio of 51.6% at the Group despite the 15% reduction in Net Interest Income.

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Digitisation of diaspora banking platform saw an increase in remittances by 54% from Ksh 9.6 billion to Ksh 14.8 billion for the period under review. Mobile innovation Equitel helped the Group capture 25.6% of the value of national money transfer in Kenya and 33% of the national market share of Mobile
Commerce.

The Group’s cost of funds reduced from 2.8% to 2.6% YoY mitigating the negative impact of interest capping that saw yields on interest earning assets decline from 14.2% to 11.2% and a lower net interest margin of 8.6% from 11.4%.

The Group’s PBT of Ksh 20.7 billion and PAT of Ksh 14.6 billion for the period were marginally below last year’s results (PBT Ksh 21.5 billion and PAT Ksh 15.1 billion). Return on Equity stood at 22.6% while Return on Assets stood at 3.9% with strong capital ratios; Core Capital to Risk Weighted Assets of 19.86% and Total Capital to Risk Weighted Assets of 20.5%.

Dr Mwangi said: “Overall, the Group outperformed the market and maintains its performance outlook for the year 2017 save for growth in deposits as a result of the unexpected slowdown in the economy occasioned by temporary macroeconomic headwinds.

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