Equity Group half year results continue to reflect a sustained digital transformation with 99% of all customer transactions now happening outside the branch network.
Releasing the results, Dr James Mwangi, Group Managing Director and CEO noted that Covid-19 acted as a tailwind to their efforts of digitising the business.
“The business transformation has supported recovery and built resilience in the business. Going online and virtual through digitisation has brought ease and convenience to our customers resulting in increased uptake of our products and growth of the business”, added Dr Mwangi.
The Group’s recovery and resilience strategy saw the Group’s profit after tax grow by 36% to kshs 24.4 billion (about Ugx 780 billion) up from Kshs 17.9 billion (about 554 billion) for the comparative half year results of the previous year. The profit growth was principally driven by a 29% growth in interest income to Kshs 55 billion up from Kshs 42.8 billion as a result of growth of loans to customers by 29% to Kshs 650.6 billion up from Kshs 504.8 billion.
“The loan growth was targeted to supporting our clients to recover and rebuild after the Covid-19 business disruptions while allowing re-purposing and retooling for resilience and agility to take advantage of emerging opportunities and green shoots in the real economy, “said Dr Mwangi.
The differentiated strategy adopted by management to support borrowers to cope with the difficulties of Covid-19 business disruptions has seen most of the businesses survive and recover. Out of Kshs 171.4 billion Covid-19 restructured loan book, Kshs 46.6 billion has been fully repaid, and a further Kshs 114.0 has resumed repayment, with only Kshs 8.1 billion non-performing. Out of the remaining Kshs 11 billion which is anticipated to resume repayment within the next six months, only Kshs 2.7 billion is showing strain of recovery.
The Group’s culture of customer centricity and focus informed the management’s Covid-19- environment strategy of focusing on customers’ recovery and resilience. Targeted lending reflected by the 29% growth of the loan book is part of the strategy to sustain recovery, growth and allow the real economy to thrive and brighten the lights of the economy in generating growth opportunities.
In pursuit of resilience and prudence, management has fully provided for the entire Kshs 8.1 billion Covid-19 book that has resumed repayment and is non-performing while proactively downgrading Kshs 2.7 billion of the remaining restructured book. The success of the recovery and resilience strategy is reflected by the decline in NPL ratios to 8.5% compared to 10.7% the previous year. The Group’s 8.5% NPL positively and favourably compares to Kenya’s banking industry NPL ratio of 14.7% as at 30th June 2022.
The Group’s NPL coverage stands at 94%. NPL coverage inclusive of credit risk guarantees stands at 119.8% and cost of risk has normalised to pre-Covid rates of below 1.5%.
The Group continues to prudently hedge against default through a loan book diversification strategy across market segments, with large enterprises holding 26%, SMEs 43%, consumer 20%, agriculture 8%, and micro enterprises 3% of the loan book. Group loan book diversification currently reflects 45.9% in US dollars and 54.1% in local currencies. Geographical sovereign risk diversification has Kenya holding 65%, DRC 19.6%, Uganda 7.3%, Rwanda 4.4%, Tanzania 3.6% and South Sudan 0.1%.
Over the last three years during the Covid-19 pandemic, Equity Group has gone through its greatest business transformation in line with the environmental challenges.
“Equity Group had adopted a strategy of business transformation through digitisation to offer customers a more online business experience offering ease and convenience. Digitisation compresses time and geography, transforming Equity banking experience from where you go, to what you do on your own devices, whatever time, wherever you are, a truly 24 hours banking experience.”
Ugandan enterprises urged to explore regional oil and gas opportunities“While our agility and flexibility allowed us to increase our software engineers by 600 new staff and our Chief Information Officers to 17 from one, Covid-19 coping, mitigation and adaptation protocols acted as a catalyst and tailwind for customers adoption of digital tools, online practices and change of technology adoption culture to deliver a speedy business transformation of the look, feel and experience of the Equity Group business,” said Dr. Mwangi.
Between June 2019 and June 2022, digital banking transactions through mobile and internet channels, Agency and Merchant infrastructure doubled from 330 million to 663.9 million while transactions on the Group’s own infrastructure of branches and ATMs declined from 25.3 million to 19.2 million transactions delivering an online self-service business model with 99% of banking transactions being outside the branch and a corresponding 74% of the value of transactions, leaving branches to do high value transactions.
During the same period, the value of digital transactions has grown over 400% to Kshs 4.4 trillion up from Kshs 1.2trillion while the value of branch and ATMs based transactions have grown to Kshs 1.7trillion up from Kshs 1.1 trillion. The Group has witnessed take-off of its business-to-business, consumer digital payments and consumer-to-business payments through corporate internet cash and liquidity management EazzyBiz and retail payment solutions.
Pay With Equity merchant solutions have grown by nearly 400% from June 2019 to June 2022 from 13.5 million transactions to 52.2 million transactions. Year on year personal internet transactions grew by 1,081% from 600,000 to 7.5 million transactions with the value of the transactions growing by 366% from Kshs 39.5 billion to Kshs 184 billion.
Consumer to business retail commerce digital transactions on Pay with Equity retail merchants grew by 382% from 7.8 million to 37.5 million transactions whose value grew by 314% from Kshs 42.2 billion to Kshs 174.8 billion.
Business-to-consumer payments transactions through the internet Equity cash and liquidity management solution EazzyBiz grew by 51% from 2.2 million transactions to 3.3 million transactions with value growing by 52% from Kshs 637 billion to Kshs 966.7 billion.
The value of mobile transactions on Equitel grew by 62% from Kshs 844 billion to Kshs 1.366 trillion while Equity mobile app value of transactions grew 97% to Kshs 552.9 billion up from Kshs 280.1 billion.
“To align to the realities of the operating environment, the business challenges of disruptions by Covid-19 and the broken global supply chains, the Group strategically opted to focus on becoming a leading Trade Finance regional bank to ease the cost of financing trade while facilitating cross border trade in the East African common market and the African Continental Free Trade Area,” said Dr Mwangi.
Gross trade finance revenue grew by 64% to Kshs 2.6 billion up from Kshs 1.6 billion while trade finance related lending grew by 106% to Kshs 34.4 billion up from Kshs 16.7 billion as trade finance guarantees and off-balance sheet items grew by 62% to Kshs 158.4 billion up from Kshs 97.7 billion.
Focus on payments and trade finance saw non-funded income grow by 23% to Kshs 25 billion up from Kshs 20.4 billion to compare with the 28% growth of Net Interest Income of Kshs 39.8 billion up from Kshs 31.2 billion. The non-funded income, a higher quality class of income, constitutes 38.6% of the total income in spite of the 29% growth in both the loan book and interest income.
