Kelvin Bowoto
Equity Group, a Kenyan bank with assets worth over $10 billion across East Africa, reported a 6.5% fall in net earnings from $341.9 million to $320.4 million for the fiscal year ending December 31, 2023, owing to increased loan defaults.
Equity’s bad credit portfolio increased to $874.8 million last year from $481.9 million in 2022, indicating failing local economies and stifling the bank’s expansion while causing the firm to boost the provision for non-performing loans (NPL) to $269 million from $117.5 million during the period.
The Central Bank requires Kenyan banks to set aside funds to cover loans if borrowers fail to pay principal or interest for 90 days.
“The NPL trend supports management’s belief that NPLs had peaked during the investors’ third-quarter briefing. “The board’s prudent risk management culture led to the approval of proactive derisking of future performance by providing for the lifetime expected loss on outstanding NPLs,” Equity Group CEO James Mwangi said on Wednesday during the results release in Nairobi.
Mwangi went on to say that the manufacturing, real estate, and logistics sectors accounted for the majority of the bank’s NPLs, indicating a challenging business environment for most local enterprises. Bad loans accounted for 32% of the lender’s loan portfolio.
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Since the COVID-19 epidemic, NPLs have been accumulating despite a challenging commercial operating climate exacerbated by local currency depreciation, rising interest rates, and record-high inflation.
Rising taxes in Kenya have also reduced the disposable income of most households and enterprises, resulting in loan defaults.
Despite the decline in profits, the Nairobi Securities Exchange-listed company has maintained a dividend payout of KES4 ($0.03) per share to shareholders, which accounts for 36% of the profit after taxes.
The bank said that interest income increased to $795.4 million from $656.5 million, while non-funded income increased by 30% to $579.4 million. Kenya’s leading lender in terms of earnings saw customer deposits increase by 29% to $9.9 billion.
Equity, which also operates in Tanzania, Uganda, South Sudan, Rwanda, and the Democratic Republic of the Congo, continues to outperform its primary rival, KCB Group, in terms of profitability. KCB reported an 8.3% decline in net earnings to $285.9 million, owing to increased operating expenses.
Techrectory with Agency Report.
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