Equity bank’s Uganda subsidiary records 23% growth in net profit, supports Group earnings - Focus on Uganda
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Equity bank’s Uganda subsidiary records 23% growth in net profit, supports Group earnings

Arthur

Equity Group‘s Uganda subsidiary has proven to be a significant driver of the overall group earnings, achieving a notable 23% increase in net profit to $12 million. This impressive performance, coupled with positive results from other subsidiaries in the East African region, has played a pivotal role in lifting the group’s net profits to $226 million during the first nine months of the year.

Despite a 20% dip in earnings from its flagship Kenyan unit, Equity Bank Kenya—the single largest contributor to profits—the robust double-digit growth from subsidiaries has effectively offset the decline. In 2022, subsidiaries comprised $71 million or 31% of Equity Group’s profits after tax. This figure has now surged to $120 million, constituting an influential 53.5% of the net earnings in the reviewed period.

Equity Group’s CEO, James Mwangi, has attributed challenges faced by customers to factors such as elevated inflation, the ongoing depreciation of the shilling against major currencies, and rising interest rates. In response, the bank has strategically absorbed part of the impact through the profit and loss (P&L) account. Mwangi explained that the interest expense deliberately outpaced the interest income, serving to accommodate the customer for at least one year.

If we thought the group was getting to maturity because Kenya is now close to maturity, the entire group has become a startup all over again because of the momentum in DRC, Uganda, Rwanda and the newfound energy that Tanzania is bringing to the table,” said Mr Mwangi

The 20% drop in net profits to $126 million for the Kenyan unit stands in stark contrast to the stellar performance of subsidiaries like Equity BCDC in the DRC, which posted an impressive 142% growth to $74 million. Mwangi expressed optimism about the subsidiary outperforming Kenya in terms of return on equity and return on assets in the current financial year.

Equity Group’s net interest income experienced a commendable 21% growth, reaching $474 million, driven by increased lending and repricing of loans. Concurrently, non-interest income also witnessed a robust uptick, rising by 40% to $377 million. Equity Group strategically repriced approximately 65% of the loan book in Kenya, adjusting rates from about 13% to an average of 16.5%, as a proactive measure to avoid mass defaults. Despite these positive developments, operating expenses surged by 46%, rising from $377 million to $552 million. This increase was primarily attributed to a nearly doubled provisioning for loan defaults, alongside rises in staff costs and other operating expenditures. Equity increased the provisioning for non-performing loans by a significant 97%, amounting to $124 million, resulting in a notable jump in the NPLs ratio from nine to 12.2%. Other operating costs rose by 46.8% to $238 million, impacting the pace of profit growth.

Source – Business Daily Africa.