March 22, 2018 / 7:09 AM / a year ago

UPDATE 2-Kenyan lender Equity expects boost from subsidiaries in 2018

(Adds details)

By George Obulutsa

NAIROBI, March 22 (Reuters) - Kenya’s Equity Group Holdings doubled its rate of profit growth last year and expects its subsidiaries to make a bigger contribution to group profit this year, its chief executive officer said on Thursday.

The bank, which also operates in Uganda, Tanzania, Rwanda, South Sudan and the Democratic Republic of Congo, posted an 8 percent rise in pre-tax profit last year, up from 4 percent in 2016, thanks to higher commissions from foreign exchange trading and trade finance.

Equity Group’s banking business in Kenya, where it is the biggest lender by customers, provides the bulk of profits but subsidiaries outside Kenya are growing in importance.

The group’s regional businesses, its mobile phone-based financial business, insurance agency and investment bank contributed 14 percent of last year’s profit and CEO James Mwangi said that will rise to 20-25 percent this year.

“What is driving the growth rate of the loan book in DRC, Rwanda, Tanzania, Uganda is GDP growth rate. They are moving pretty well,” he told an investor briefing.

In Kenya however, economic growth dropped last year by a percentage point to an estimated 4.8 percent, hurt by a drawn-out presidential election, drought and sluggish credit growth.

“It was a heavy election year and that took a lot of wind from the sails,” Mwangi said.

In 2016, Kenya capped commercial lending rates at four percentage points above the central bank rate, and set a minimum deposit rate, crimping profit margins for banks.

Mwangi said the cap should be removed swiftly.

“The cost to this economy is so enormous that we can’t afford to continue with that,” he said.

Mwangi told Reuters last November that the interest rate cap had locked at least half a million small borrowers at Equity out of credit. Those affected were mainly small traders and informal sector employees deemed by the bank to be too risky to receive loans at or below the rate cap level.

Equity Group said pretax profit rose to 26.88 billion shillings in 2017 from 24.93 billion shillings a year earlier.

The net interest margin dropped to 8.5 percent last year from 11.6 percent a year earlier. Its bad debts fell slightly to 6.3 percent from 6.8 percent the previous year, well below the industry average of 10.6 percent.

$1 = 101.0000 Kenyan shillings Editing by Duncan Miriri and Adrian Croft

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