NAIROBI, Kenya, Mar 8 – Equity Bank has posted a 45 percent net profit growth to Sh10.33 billion for the year ending 31 December 2011.
The Bank’s Managing Director James Mwangi attributed the growth to reduction in costs through enhancing delivery channels such as agency banking, customer growth and positive impact on Equity’s loan book due to improved participation by Small and Medium Enterprises (SMEs).
Equity’s loan book grew 45 percent from Sh78.3 billion to Sh113.8 billion, while improving its non-performing loans from 4.5 percent to 2.8 percent.
“The loan book growing significantly is now turning the bank slightly to grow in favour of interest income. The new business model will be 60/40 in favour of the interest income because of the growth of the SME space,” Mwangi noted.
Although SMEs are often viewed as high risk borrowers, Mwangi said Equity had been able to remain 0profitable in the market by selecting premium customers and beefing up its risk management system by bringing in personnel specialising in lending to small businesses.
The unstable micro economic environment last year saw banks raise their interest rates four times, with the average banking industry loan interest rate currently standing at 32 percent.
Choosing to cap Equity’s interest rate at 25 percent, proved to of help to its customers despite deposits remaining expensive for banks, said Mwangi.
The decline in Treasury Bills rates from 24 percent to 20 percent, Mwangi added, has started to reflect in fixed deposits. However, he appealed to parliamentarians to reconsider plans to control interest rates.
“My recommendation to them will be to consider the long-term implications and re-evaluate their decision. Markets are best left to the market forces unless there is a law being broken,” he said.
Equity Bank opened its first Rwanda branch last month expanding its footprint in the region, to add to its presence in Kenya, Uganda, South Sudan and Tanzania.
The bank’s subsidiaries contributed seven percent of total profit for the year and 10 percent of the balance sheet.
Meanwhile, customers grew 24 percent (1.5 million) to 7.15 million, while agency banking grew 270 percent to 3,234 operational agents.
In the year ahead, Mwangi said the bank will continue in its mass market approach by growing its SME business that accounted for 41 percent of Equity’s loan portfolio last year.
“The strategy for 2012 is to institutionalise, enhance and consolidate on the agency banking space. Expand mobile banking. We will become more inclusive taking care of the SMEs,” he said.
Despite a dip in weighted assets, Mwangi assured the bank had enough capital to last the year adding that there was room next year to rethink the bank’s funding strategy and was open to a rights issue or IPO as options to raise more capital.
The shareholders proposed dividend grew by 25 percent from Sh2.9 billion to Sh3.7 billion with the dividend per share growing from Sh0.80 to Sh1.