Equity Bank profit dips 4pc on tight loan book management

Equity Bank has announced a four percent dip in its full year profit to Sh16.6 billion.

The country’s largest bank by customer numbers attributed the drop in profitability to a mix of interest capping and slow growth in its regional subsidiaries.

On the regional front, the environment was characterized by uncertainties due to the electioneering in Tanzania and Uganda, the transitions in South Sudan and DRC.

The pending elections this year in Kenya and Rwanda played a role in slowing economic activities as investor’s exercised caution in their investment decisions.

Equity Bank chief executive James Mwangi said on Wednesday that following the rate cap law that came into effect in September last year, the bank was forced to adopt a more cautious lending practice that resulted in a decline in its loan book.

“Capping was one off. So we decided to respond to the capping with a one off. Tough costs and operating costs and basically bringing in a profit before tax to Sh24.9 billion from Sh24 billion,” said Mr Mwangi.

This is the first time in half a decade that the bank has seen its profit growth decline, an indicator of the changes in the banking sector.

During the year under review, Equity Bank issued Sh266 billion worth of loans, a decline from Sh269 billion a year earlier as the bank focused more on lending to SMEs rather than individuals.

“We have a cost of risk that we cannot pass to the borrower and this is eating into the banks’ profitability. The capping withdrew the only tool we use in the market,” he said.

The bank was also forced to make higher provisions of Sh6.6 billion for non performing loans. This saw the total operating expense jump to Sh39.1 billion, eating into its overall performance.

The group continues to focus on prudent and optimal capital allocation to boost value creation for its shareholders.

Tags:

non-performing loans James Mwangi equity bank KBA business government borrowing investment Banking Sector NPLs interest rate cap operating costs Interest Income full year profit loan bok provisions tighter controls

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