Nairobi, Kenya: After reporting a 5% decline in profit after tax for the year ended 31st December 2023, Equity Group Holdings has bounced back recording strong 1st quarter results. Profit after tax for the period ended 31st March 2024 grew by 25% to a record Kshs.16 billion compared to a similar period last year.
Differentiated strong leadership decision-making and an agile balance sheet drove the swift recovery. Bold decisive actions saw growth in deposit placements to 11% compared to the deposits growth of 29% registered for the year ended 31st December 2023, as the Group skipped expensive deposits. Growth in long-term borrowed funds saw a decline of 21% year on year for the period ended 31st March 2024 as the Group paid out maturing and repriced expensive dollar-denominated loans.
Given the elevated credit risk characterized by a high non-performing loan environment, the Group enhanced credit risk underwriting resulting in a 3% year-on-year growth in loan book as of 31st March 2024 compared to a 26% growth rate for the year ended 31st December 2023. This also led to the reallocation of lending from private-sector credit to public-sector lending through government securities, which grew to 21%. Consequently, the cost of credit risk dropped to 2.9% for the period to 31st March 2024 from 4.4% for the year ended 31st December 2023.
The loan-to-deposit ratio stood at 63% as of 31st March 2024 compared to 65.3% as of 31st December 2023. There was slow customer deposit growth and decline in long-term loans yielding a lower year-on-year growth of interest expense for the reporting period to 31st March 2024 to 41% compared to 53% for the year ended 31st December 2023. Interest income for the period to 31st March 2024 grew to 33% compared to 30% for the year ended 31st December 2023.
Growth of net interest income accelerated to 28% for the period ended 31st March 2024 compared to 21% for the year ended 31st December 2023. Provisions grew to 84% for the period ended 31st March 2024 compared to 139% for the year ended 31st December 2023. NPL coverage as of 31st March 2024 reporting improved to 68.5% compared to 67.3% reported on 31st December 2023.
From left to right: Equity Group Chief Operating Officer, Samuel Kirubi, Equity Group Managing Director and CEO, Dr. James Mwangi and Mr. Mwai Kihu, a shareholder, during the Q1 2024 Investor Briefing event.
Through efficiency pursuits at the operational level, growth in total costs declined from 52% for the year to 31st December 2023 to a growth of 28% for the period to 31st March 2024. This decline in total costs effectively improved cost to income ratio for the period to 31st March to 47.1% down from 52.3% for the period to 31st December 2023. In addition, digitization and automation of processes have significantly enhanced convenience and ease to customers in self-serving using their own devices and 3rd party infrastructure which has shifted the cost structure of the Group from fixed cost to variable costs.
While releasing the results Dr James Mwangi, Equity Group Managing Director and CEO said, “The recovery momentum is strong after accepting and adapting to the new normal of operating in an environment characterized by Volatility, Uncertainty, Complexity and Ambiguity – VUCA. An environment defined by high inflation, interest rates and volatile currency exchange rates.”
Group liquidity stood at 52.1% with a balance sheet of Kshs.1.69 trillion nearly split equally between a loan book of Kshs.779 billion and liquid assets of Kshs.752 billion split between cash and cash equivalent of Kshs.279 billion and investment in government securities of Kshs.473 billion.
A strong liability franchise with 20 million deposit customers contributing Kshs 1.236 trillion of the Kshs 1.69 trillion and underpinned by long-term funding of Kshs.343 billion made up of long-term debt funding of Kshs 125 billion and Kshs.219 billion of share capital and shareholders’ funds. The Group in pursuit of financial inclusion has built a diversified loan portfolio of Kshs.779 billion out of the total funding of Kshs.1.69 trillion, spread 40% among corporates and large enterprises, 26% among micro, small and medium enterprises, 28% retail and consumer and 6% among public service institutions in all sectors and segments of the real economy helping diversify credit risk concentration. Group NPLs have peaked at an elevated level of 13.2% but compare favourably with the industry NPL ratio of 15.5% and coverage of 68.5%.
In its relentless execution of the Africa Recovery and Resilience Plan – ARRP, the Group has successfully transformed from a Kenyan banking leader to a regional systemic financial services leader. The Group boasts of being in the top five positions in 5 out of 6 countries it operates in, with operations in 3 of the countries being the top 2 market leaders. The regional banking subsidiaries contributed 63% of the Kshs.20.4 billion profit before tax with a return on average equity of 27.6%, cementing the Group’s position as the regional banking leader.
From left to right: Equity Group Chief Operating Officer, Samuel Kirubi, Equity Group Managing Director and CEO, Dr. James Mwangi and Equity Group Chief Finance Officer, Moses Nyabanda, during the Q1 2024 Investor Briefing event.
Equity Group’s strategy to evolve with the needs of its customers and the economies it helps to connect and integrate has led to business diversification beyond financial inclusion by diversifying offerings and moving up the value chain as it scales and connects fragmented supply chains and trade routes. As a result of business and product diversification, non-funded income contributed 43.9% of the total income of Kshs.49.6 billion at Kshs.21.8 billion. Treasury contributed 30% of all gross income of Kshs 64.8 billion at Kshs.19.6 billion while Trade Finance revenue grew by 22% to Kshs. 3.1 billion whilst off-balance sheet Trade Finance facilitation grew by 23% to Kshs.205.6 billion.
The new life insurance business took a strong start with robust growth in its second year of operations. Profit after tax grew 106% to Kshs.321 million while total insurance assets grew by 288% to close at Kshs.20.8 billion while return on average Equity grew 25% to 54% up from 43% whilst posting a positive Insurance Service Result, indicative of strong underwriting practices. This confirms that there is a significant opportunity in insurance by providing relevant, innovative and technology-driven solutions to the underserved.
In its second year of operations, the life insurance subsidiary has risen to the 4th position in the industry in Gross Written Premiums with a 9% market share and number 2 position in Group Credit Business with an 18% market share, position 4 on profitability and position 7 in size in terms of total asset and provided the highest in Return on Equity as at 31st December 2023. 2024 signaled a strong start with growth of Insurance total assets by 288% to Kshs.20.8 billion up from Kshs 5.4 billion while net insurance and investment revenue grew 91% to Kshs.342 million up from Kshs 179 million.
The large distribution and logistics infrastructure of a regional and diversified business spanning over 6 countries of 400 branches, 1.1 million Pay with Equity merchants over 100,000 agents, 30,000 POS merchants and over 700 ATMs came in handy for the insurance business to reach 5.5 million unique customers with issued 11.1 million policies within a period of 2 years by the end of March 2024.
