Equity Bank Group’s investment in ICT and Focus on SME boosts profits by 11 percent in the year 2013 while cementing Return on Equity at 28% despite challenging environment

Equity Bank Group’s investments in IT, growth in the number of customers and branch upgrades to cater for the growing SME segment have boosted 2013 profit before tax by 11 percent to Kshs 19.15 billion up from Kshs 17.29 billion the previous year. Cost to income ratio reduced to 48.5% in 2013 and NPLs reduced in Q4 despite a challenging operating environment. The Base Lending Rate was reduced by 800bps in May 2013. South Sudan faces uncertainty. Despite these challenges, the Group generated ROE of 28% for the year and 35% in Q4 alone.

The Bank cemented its leading market position by growing its customer base by over 600,000 to 8.4 million customers and increasing its agent network to 10,260 from 6,300 in 2012. Customer deposits grew by 16 percent to Kshs 194.8 billion up from Kshs 165.81billion in 2012. Loans and advances to customers grew by 26 percent to Kshs 171.36 billion up from Kshs 135.69 billion the previous year.

The Group’s total income grew by 14% to Kshs 41.86 billion up from Kshs 36.83 billion in 2012. As a result of a strategic decision to retire expensive deposits at the start of year 2013, the Banks interest expense reduced by 22% from 6.8 billion in 2012 to 5.3 billion in 2013. Non - interest income recorded a 20 percent growth to Kshs 15.37 billion up from Kshs 12.86 billion in 2012. The increase was mainly attributable to the increase in both customer, and agent numbers that resulted in more transactions and growth in foreign exchange resulting from SME business growth.

During the last quarter of 2013 the Bank announced a partnership with American Express where Equity Bank began acquiring merchants onto the American Express (AMEX) network in Kenya, Tanzania and Uganda. Equity Bank will continue to develop innovations aimed at attracting Diaspora remittances, global trade, agency banking, SME sector and Bancassurance. SME loan book grew by 28% while Agency network grew by 55%, merchant business and payment processing grew by 47% while Diaspora remmitances grew by 36%.

The Group’s cost to income ratio reduced to 48.5% despite the massive investment in the IT platform and the branch network to support SME growth. Equity Bank Group together with IBM, Oracle, Infosys Technology and Way 4 Communications recently unveiled its new migration of the group’s robust IT platform which will enable the Bank to roll out its future technology driven products providing comprehensive business functionality and enhancing customer experience. The Group has upgraded its core banking software from Finacle v7 to Finacle v10 which now allows for multi-currency and multi country transactions and the ability to use different payment channels.

Equity Bank’s Group, Chief Executive Officer, Dr. James Mwangi expects costs to further reduce in medium term as a result of investments in mobile and agency banking, payment systems and ICT. “We remain optimistic that the growth momentum will be maintained in 2014 supported by the stable economic environment and the investments the bank has made in ICT, mobile and agency banking and the growth in the SME portfolio,” said Dr Mwangi.

The Group’s profit after tax increased by 10 percent to Kshs 13.28 billion up from Kshs 12.08 billion the previous year. Q2 and Q3 performance was impacted by the reduction in Equity Bank's Base lending rate by eight hundred basis points from 25% to 17% in May 2013. Q4 saw return to normalcy with 73% growth rate in profitability in comparison to Q3 profits. An impairment of Kshs 0.7 billion was effected in the Group due to increased uncertainty in South Sudan. The NPL position of the bank started to decline.

Equity Bank's balance sheet remains robust with a core tier 1 ratio of 14.6% (18.6% old P.G) and a liquidity ratio of 34%, well above its statutory minimum requirements.

As a demonstration of confidence in the strength of the Bank’s balance sheet and sustainability of growth, the Board has recommended a divided of Ksh1.50 per share up from Ksh1.25 per share payment made in 2012, a growth of 20%.

The Bank expects the contribution by the Insurance agency, Tanzania, Rwanda and Uganda subsidiaries to improve significantly and South Sudan to stabilize.

“The issuance of the Eurobond in 2014 will result in reduced domestic borrowing by the government consequently driving banks to lend more to the private sector,” Said Dr. Mwangi.