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Equity Giveth Dividend And Taketh Away

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Equity Bank branch. Equity Bank has acquired billions to lend to Small and Medium Enterprises (SMEs) hit by COVID-19. [ Photo / Equity Group ]
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The Board of Directors of Equity Group has withdrawn a Ksh9.5 billion dividend payout it had declared earlier for its shareholders to preserve its cash reserves and cushion itself against financial shocks, as the Coronavirus pandemic begins to hit baking vaults.

The board said the move was taken as a way of risk mitigation and management after the balance sheet date of December 31st 2019. Incidentally, this comes at the expense of shareholders who will go without the much-awaited dividend.

Cushioning business

“The Equity Group Holdings Board took a conservative approach that recognizes the emerging unquantified risk of the pandemic and opted to preserve capital in the face of the prevailing uncertainty,” said Dr James Mwangi, the Group CEO and Managing Director. “A strong capital and liquidity position gives us the strength and capacity to cushion our business and accommodate and walk with our customers during these challenging times.”

He said by the Board is exercising financial prudence so as to conserve cash to enable the Group to respond appropriately to the unfolding crisis in terms of supporting its customers, and direct cash resources to potential opportunities that may arise as economies in which Equity Group Holdings operates begin to recover.

“If the economic crisis mutates into a financial crisis, Equity Group will be well placed to weather the challenge with a strong capital base, strong liquidity and an agile balance sheet that improves its leverage, and would allow the financial services group to shield and accommodate its customers throughout this period of uncertainty,” said Dr Mwangi.

“However, should the crisis not play out as anticipated, the Board will explore various options and make suitable recommendations that will enhance shareholder value.”

With this approach, Equity Group leadership and management can focus on strategically positioning the business, in order to protect and preserve its customer base through loan accommodations and rescheduling/restructuring to enable them to go through the prevailing turbulence while at the same time preserving cash to shore up the financial revival and growth of its customers’ businesses post the COVID-19 crisis.

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The COVID-19 global health pandemic has led to a great lockdown which has induced a complex and multi-faceted global crisis of health, economic, and social challenges.

The pandemic’s effects have created a significant drop in the global GDP, and a substantial loss of employment leading to an economic recession which economists are projecting will evolve into a global depression worse than the Great Depression of the 1930’s.

Growth projections

The global economic outlook has worsened considerably since the beginning of the year. The United Kingdom has entered a severe recession last experienced in the 17th Century, while the United States unemployment rate is expected to reach 25% by the end of 2020 with 39.6 million people already unemployed.

The most recent global growth projections from the International Monetary Fund (IMF) have revised the global economic outlook to below the 2.9% achieved in 2019 from an initial projection of 3.3% to -3.0% (negative 3.0%) of GDP growth rate, which they feel is optimistic.

Cautiously, the IMF also projects that if the pandemic fades in the second half of 2020 and if policy actions taken around the world are effective in preventing widespread bankruptcies, extended job losses, and system-wide financial strains, global growth could rebound to 5.8% in 2021.

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Written by
BT Correspondent -

editor [at] businesstoday.co.ke

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