Equity Group, one of Kenya’s leading financial institutions, has announced a strong financial performance for the first half of 2024, reporting an 11.8% increase in net profit. The bank’s profit after tax rose to Ksh 28.5 billion in the six months ending June 2024, compared to Ksh 25.5 billion recorded during the same period last year. This growth reflects the bank’s resilience and strategic management in navigating the challenging economic environment.
Revenue Growth Amidst Economic Challenges
The significant rise in profit can be largely attributed to an increase in the bank’s total income, which surged by 16.3% to Ksh 97.1 billion from Ksh 82.9 billion in the corresponding period of 2023. Despite a noticeable decline in foreign exchange earnings, which dropped to Ksh 6.6 billion from Ksh 8.4 billion, the bank’s trade finance operations played a crucial role in bolstering overall income. Dr. James Mwangi, the CEO of Equity Group, acknowledged the difficulties faced in forex earnings during the investor briefing on Monday but emphasized the role of trade finance in sustaining the bank’s growth trajectory.
“This has been a very difficult time for forex earnings. They are down by Ksh 2 billion but because of trade finance we are holding up, returning growth of total income of 16%,” Dr. Mwangi noted, underscoring the bank’s ability to adapt and maintain profitability despite external pressures.
Strong Performance in Interest Income
Equity Group’s net interest income showed robust growth, increasing by 22% to Ksh 84.8 billion from Ksh 69.8 billion reported in the same period last year. This growth occurred despite the challenges posed by high inflation and interest rate shocks, which have been a significant concern for the banking sector. However, these same economic conditions led to a 30% rise in interest expenses, which grew to Ksh 30.4 billion from Ksh 23.4 billion in the previous year.
Non-funded income also contributed positively to the bank’s financial results, rising to Ksh 42.8 billion from Ksh 36.5 billion. This increase in non-interest income highlights the bank’s diversified revenue streams and its ability to generate income from various sources, ensuring a balanced financial performance.
Challenges in Loan Growth and Non-Performing Loans
Despite the overall positive financial performance, Equity Group faced some challenges in its lending portfolio. The bank reported a slight decline in net loans and advances, which fell by 3.2% to Ksh 791.1 billion from Ksh 817.2 billion. This decline is attributed to customers reducing their borrowing due to high interest rates and volatility in the exchange rate, reflecting the cautious approach of borrowers in a challenging economic environment.
Furthermore, the bank experienced an increase in gross non-performing loans (NPLs), which rose from Ksh 97.5 billion to Ksh 119.9 billion. In response to this, Equity Group increased its loan loss provisions by 47.9% to Ksh 10.5 billion from Ksh 7.1 billion. Dr. Mwangi highlighted the bank’s defensive strategy to enhance loan loss coverage, which has helped stabilize the NPL ratio.
“We may be strained in terms of NPLs like any other, but at 12.9% compared to 16.3% the Kenya banking industry average, the bank is performing at least 350 basis points better than the industry,” Dr. Mwangi stated, emphasizing Equity Group’s relative strength in managing loan defaults.
Asset Growth and Future Ventures
Equity Group’s total assets grew by 6% to Ksh 1.75 trillion, up from Ksh 1.64 trillion recorded in the same period last year. Notably, the bank’s regional subsidiaries accounted for 49.7% of the total assets, highlighting the importance of its operations across East Africa.
In addition to its strong financial performance, Dr. Mwangi revealed that Equity Group has received approval in principle to expand into the health insurance sector. Currently, the bank’s insurance subsidiary, Equity Insurance, offers life and general insurance products. The insurance arm reported a 27% increase in insurance service revenue, rising to Ksh 1.03 billion from Ksh 812 million.
Equity Group’s financial results for the first half of 2024 underscore the bank’s resilience and adaptability in a challenging economic environment. Despite facing headwinds such as high inflation, interest rate shocks, and a decline in forex earnings, the bank managed to achieve double-digit profit growth, driven by strong performance in trade finance and interest income. As the bank continues to expand its services, including its venture into health insurance, Equity Group remains well-positioned to navigate the evolving financial landscape and deliver value to its shareholders and customers.
