Equity Bank sees earnings from regional units rising

Kenya’s Equity Bank Group expects its regional subsidiaries to contribute 60 percent of profit in five years from roughly 10 percent now, its chief executive said on Monday after announcing a 14 percent rise in nine-month pretax earnings.

Equity’s pretax profit climbed to 18.14 billion shillings ($177.58 million), helped by higher interest income.

Equity, which focuses on the lower-income part of the Kenyan market, also operates in Uganda, South Sudan, Tanzania, Rwanda and Democratic Republic of Congo.

“In five years, we expect the subsidiaries to have grown significantly,” CEO James Mwangi said.

Kenya’s contribution to the bottom line was expected to slide to 40 percent from 89.1 percent in the nine months to September, he said. It has already slipped from 94.5 percent in the same period of 2014.

In the first nine months, interest income rose 21 percent to 31.60 billion shillings, while customer deposits rose 30 percent to 317 billion shillings.

Mwangi said growth in loans was expected to slow across the industry in the coming months due to rising interest rates that would force businesses to postpone new borrowing.

Rates on Kenya’s benchmark 91-day Treasury bills rose to 22.492 percent last week from 8.529 percent at the start of this year. The central bank has raised its benchmark lending rate to 11.5 percent this year to support a weakening shilling.

“People can postpone projects that can wait for six months or one year,” Mwangi said. “And we advise people, if there is no urgency, and we know it is a short-term spike, why do you want to hit turbulence?”

At 1007 GMT, Equity Bank shares were up 1.8 percent to trade at 41.75 shillings.

Total loans rose 27 percent to 263.4 billion shillings from 206.7 billion, while total assets rose to 445.8 billion shillings from 339.44 billion.

Equity group’s ratio of bad debts to total loans rose to 4.5 percent from 4.3 percent in the first nine months of 2014.

Mwangi blamed this on rising non-performing loans in operations in South Sudan, which has been mired in conflict since December 2013.

Mwangi said the value of transactions on its mobile phone banking service, launched in July, rose to 69.5 billion shillings at end of September from 49.5 billion shillings in July. It now has 1.3 million users, as it capitalises on rising demand for mobile banking services in Kenya. ($1 = 102.1500 Kenyan shillings) (Reporting by George Obulutsa; Editing by Edith Honan and David Evans)