KENYA – Equity Group, a financial services holding company, half-year net profit has tumbled by 24.3 percent to KSh9.02 billion (US$83.07m) after the lender increased provisioning for loan defaults by nearly nine times to reflect the Covid-19 triggered economic difficulties facing borrowers.

The lender said that net profit for the six months to June has retreated from KSh11.92 billion (US$109.78m) posted in a similar period last year.

The fall in profit was despite net interest income growing by 16.9 percent to KSh24.6 billion (US$226.56m) as the lender’s loan book expanded by KSh70.7 billion (US$651.12m) or 22 percent to KSh391.6 billion (US$3.61m).

Equity increased loan loss provisioning 8.7 times to KSh8.02 billion (US$73.86m) in contrast with KSh918.5 million (US$8.46m) that had been made in the preceding similar period.

Gross non-performing loans have risen by KSh16.3 billion (US$150.12m) or 55.7 percent to KSh45.55 billion (US$419.5m), pointing to deterioration in loan book quality in a Covid-19 environment.

Higher loan loss provisioning saw operating expenses jump by 31 percent to KSh27.1 billion (US$249.58m) to pull down the bottom-line.

Equity becomes the fourth top bank to post a drop in profit, majorly on increased provisioning for bad debts given the economic hardships facing borrowers.

KCB Group net earnings tumbled by 40 percent to KSh7.5 billion (US$69.07m), while that of Co-operative Bank of Kenya fell 3.6 percent to KSh7.3 billion (US$67.23m). Stanbic Bank half-year profit dipped by 37.2 percent to KSh2.55 billion (US$23.48m).

Equity’s half-year profitability is now the highest in the sector. However, the last time Equity beat KCB in full-year earnings was in 2014.

During the review period, Equity’s non-interest income, mainly earned from fees and commissions, dipped by KSh2.1 billion (US$19.34m) or 13 percent to KSh14.4 billion (US$132.62m).

The drop in non-funded income came on the back of waivers on transfers between banks and mobile wallets such as M-Pesa as Central Bank of Kenya (CBK) moved to lower cash handling in the wake of Covid-19.

“As an offensive strategy, the Bank increased lending to agriculture and agricultural processing growing credit to the sector by 40%, while credit to the enterprises grew by 28% as resources were directed to Personal Protective Equipment (PPEs) production in the region,” added Dr. Mwangi.

“To support clients comply with the health protocols, the Group focused on virtualization and digitization of the Bank, and by 30th June 2020, 98% of all cash transactions were happening outside the branch network with 83% of transactions being on the mobile platform.

“Furthermore, resources were dedicated to enhancing fintech innovation in Diaspora remittances to enable social payments reach families that saw regional diaspora remittances growing by 57% from KSh66.6 billion (US$613.36m) to KSh104.9 billion(US$966.09m).”

Equity Group CEO James Mwangi had in June said the lender was losing KSh120 million (US$1.11m) per month from the CBK directive.

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