Net profit contribution from the business outside Kenya grew to 28% compared with 18% in the previous year
Kampala, Uganda | ISAAC KHISA | Regional lender, Equity Group Holdings, has recorded 11% drop in profit after tax to Shs 684 bn for the year ended Dec.2020 citing effects of coronavirus pandemic.
But management says stakeholders need not to worry as the lender will soon bounce back to its normal growth curve owed to the ongoing coronavirus vaccine exercise and anticipated recovery in global economies.
The group’s subsidiaries in Uganda, Tanzania, Rwanda, South Sudan and Democratic Republic of Congo contributed 28% of its net profit.
Financial results released recently also shows that the net interest income grew by 23% to Shs1,872 billion driven by a growth in customer loan book and investment in the government securities.
Non-funded income grew at 27% to reach Shs 1,293 billion up, surpassing the Shs 1,021 billion recorded in the previous year to contribute 41% of the total income. Forex trading income grew by 77% to stand at Shs 551 billion compared with Shs 119 billion in the previous year.
Diaspora remittances commissions, too, grew by 76% to Shs 1,735 billion while the volume of Forex trading increased by 51% to Shs 29,375 billion during the same period under review.
However, yields on loans declined from 12.6% to 12.4% due to increased suspended interest on increased non-performing loan book and change of loan book mix of local currency to US$ currency to 57%:43% from 64%:36% ratio in favour of the local currency as a result of acquisition and merger of BCDC in DRC
Meanwhile, operating costs grew by 67% to Shs 2,416 billion compared with Shs 1,446 billion in the previous year, driven by growth in gross loan provision of Shs 905billion, up from Shs 180 billion in the prior year, increasing the cost of risk to 6.1% up from 1.3% the previous year. The higher loan loss provisions enhanced NPL coverage to 89%.
Surprisingly, the group’s cost to income ratio improved to 48.5% from 51.1% meaning that it incurred less expenditures in generating revenues due to increase in the use of digital transactions.
Digitisation, for instance, enabled 98% of all group transactions to happen outside the branches with 85% of the transactions being on self-service mobile and internet banking and 12% of the transactions happening on agency and merchant banking third party variable cost infrastructure. Only 3% of transactions happened on fixed cost brick and mortar branch and ATM infrastructure.
The lender’s branches, for the first time, handled less than half of transaction value, accounting for only 37.4% of such value with the 62.6% of the value of transactions taking place outside the branch.
The group also recorded a 51% growth in its balance sheet with total assets growing to Shs 34.548trilllion driven by increase in customer deposits.
Commenting on the results, Equity Group Holdings Managing Director and CEO James Mwangi said the 2020 results reflect a purpose lived and a management team uniquely differentiated by the decisions it made.
“From the onset, Equity group management opted to safeguard and cushion the lives of staff, clients, and host communities by supporting lives and livelihoods through maintaining economic activities to keep the lights of the economies on and boosting Government efforts with Shs 136 billion initiatives,” he said.
EGH’s management says with the development of COVID-19 vaccines and the world embracing vaccination, the group is optimistic that the health crisis caused by the pandemic will in time be brought under control.
“ The world is united to rebuild better and with the strong economic stimulus of US$1.9 trillion rolled out by the US, the global economy as projected by the World Bank and the International Monetary Fund to register over 5% GDP growth rate, we are optimistic of the opportunity for the group to bounce back,” they said.
“The strong group liquidity ratio of 59.3% and strong loan/asset ratio of 47% and loan/deposit ratio of 64.5% offers the group an excellent opportunity to execute an offensive strategy while keeping risk under control.”
Management said the group expects the cost of risk to normalize going forward given the improving economic environment as well as the high NPL coverage of 89.4% for 2020.