Equity Group has reported a solid 48.8 billion shillings in it’s latest full year earnings, representing a 12 per cent jump. The bank’s performance is anchored on efforts on the Group’s diversified business model and prudent financial management. The lenders' Earnings Per Share (EPS) rose by 11 per cent to 12.3 per cent signifying the Group's robust financial performance. CNBC Africa’s Aby Agina spoke with the bank’s Group CEO, James Mwangi for more.
Equity Group has reported a solid 48.8 billion shillings in it’s latest full year earnings, representing a 12 per cent jump. The bank’s performance is anchored on efforts on the Group’s diversified business model and prudent financial management. The lenders' Earnings Per Share rose by 11 per cent to 12.3 per cent signifying the Group’s robust financial performance. CNBC Africa is now joined exclusively live by James Mwangi, the bank’s Group CEO, for more. Thank you so much, Dr Mwangi, for joining us on CNBC Africa. Quite some impressive numbers there. Yes, thank you for having me. Yes, we reported the results, as I said, top line of 60.7 billion shillings profit before tax. That's likely said 48 billion net profit after tax. And broadly what has really driven that profitability is the concerted strategic effort of diversifying our business, diversifying it across the region and diversifying it across lines of business. So we see now the regional businesses are contributing more than the whole market of Kenya in terms of banking, in terms of profit, 54 per cent of the profit came from the regional subsidiaries. That's DLC, Rwanda, Uganda, Tanzania and South Sudan. So that diversification of what we have. The second one is diversification lines of business. And we see beyond banking now we have insurance and the technology group. And whilst it's too early, they have taken 3 per cent of the entire profit of the group. But broadly, given the turbulence in the market price, we have really focused on what we can control. And so we saw costs growing slower than leavening. So there's optimisation, there's efficiency pursuit so that we could be able to deliver value to the shareholders. And that helped us to increase dividend payout to 4 shillings and 25 cents on a par value of 50 cents. Interesting outline there, Dr Mwangi. And looking at the regional subsidiaries, if you were to give them in terms of ranking order, where did you see the best performance and where are you concerned when it comes to driving growth within the region? In terms of percentage growth, the best performance came from Tanzania, followed by Rwanda. In terms of quantum, DLC led the subsidiaries as the largest subsidiary, reasonable growth at 28 per cent. And also we saw Uganda recover significantly to also make positive contribution. So broadly, I would say we are lucky that we are in the countries that four of them are ranked among the fastest growing 10 economies in the world. And so generally, there is a tailwind in all the markets for growth. Amazing. And looking into the next quarter, well, we've seen some impressive numbers coming out of your insurance business. And is this likely to attract more investment at the board level when you're looking at the big picture for the group? Yeah, we have realized that for the last 40 years, we have been helping our customers improve the quality of their lives, enhance their dignity while expanding opportunities for wealth creation. But certainly then we realize that, yes, we have enhanced the quality of life, the dignity of the people. What we now need is to protect their health, their life and the wealth they are creating. And that's why we have taken three licenses, a life insurance, a health insurance and a general insurance to protect wealth and property. And this works together because risk play and when they play, when you're up the ladder, the insurance holds you back from slipping back to the bottom of the ladder. We've also recognized that some of the challenges like health, health incidents can really change the fortunes of the family. And instead of taking that risk, then we have almost a collective scheme making health very, very affordable through insurance. And the good thing is we then make it practical by being able to provide premium financing from the bank. So broadly, we are preaching universal health because health has become a big challenge for most households. So we see the insurance as the growth point for the group going forward to complement the great work the bank has done in helping people to create wealth and to improve their lives. So we now need to secure all this. All right. And Dr. Mwangi, I'm just looking at the numbers here on my screen and we did see total deposits grew to reach 1.4 trillion with the customer base growing to 21.6 million. Quite impressive. And looking at the downside, the gross non-performing loans increased by 6.5 percent to 121.9 billion while net NPLs declined by 18.7 percent. There seems to be some work there, isn't it? Yeah, there's quite a lot of work to be done. Of course, the largest room has always been the room for improvement. But there is a story behind these numbers. If you look on a constant currency value, these numbers will all be growing beyond 20 percent. The Kenya shillings between the two years are appreciated from 160 to 130. And given that half of our balance sheet is outside Kenya, then that is what has muted growth. But we are very comfortable that when you put them in constant currency, all the growth parameters are above 23. But more importantly is the growth in deposit, because growth in deposit during hard times shows that the market and the customers have selected you as the safe, secure place for their money. It speaks of the confidence and the trust in the brand. And that also explains why equity has become Africa's strongest financial brand in dating, and also by market valuation for Eastern Central Africa. In NPLs, we are excited that despite the fact that we had 12 percent NPLs, the banking industry in Kenya is at 16 percent. So it's not a good number, but we take comfort. We have differentiated ourselves in the market. But more importantly is also we have the best NPL coverage in terms of provision. So we have accepted that there is a lot of work to be done, but we have also taken the precaution to ensure that risk of what needs to be done is not carried forward and doesn't impair the performance of the future. Speaking about the future, what will be defining this fiscal year, considering that right now the global geopolitics has been quite shaky. We are seeing some trade tariffs coming in. And of course, domestically back home, we're also seeing the National Treasury saying that there has to be some tightening of the belt, considering that inflation is of course being managed. But in equal measure, banks are still yet to bring down the rates farther down. Yeah, it's true that the external environment is very challenging. In Europe, we are navigating six simultaneous shocks in the marketplace, in the external. We have no control of the Russia-Ukraine challenge. We have no control of the Israel-Palestine conflict. We have no control of the American fast philosophy of the American people. We can't control the tallies. But there are things internally that we can control. And that is what we are focused on. How do we transform equity to be resilient to these shocks so that we become agile, we become fairly flexible? How do we also make equity efficient and optimize in the resources we have? So we find that we need to look at our costs significantly. If we can't drive income, then we can drive costs down so that we don't impair the soliders. The second one is, how do you manage your balance sheet? For instance, as you rightly said, we have half a trillion shillings in government stocks. That's almost 27 percent of the entire balance sheet. So we're asking ourselves, how do we move from these low-earning assets in government securities to high-earning? That explains why we have purposed to increase our lending to the agricultural sector to 30 percent of our balance sheet. Food must be grown irrespective of the environment that we are operating in. People must eat. And that then helps us to build. If that money, how about a trillion? Kenyan shilling, we're earning 12 percent. It goes to lending to earn 16 percent. That enhancement in margins is something that is within our control. So optimization is central. Quite a lot to unpack there. Thank you so much, Dr James Mwangi, Group CEO and Managing Director for Equity Group Holdings.
Theme: Resilience and Innovation Driving Equity Group's Growth
Equity Group has reported a solid 48.8 billion shillings in its latest full-year earnings, marking a 12 per cent increase. The bank's success has been attributed to its diversified business model and sound financial management practices. James Mwangi, the Group CEO, highlighted that the strategic efforts to expand across regions and business lines have significantly contributed to the group's profitability. The bank's regional subsidiaries in DLC, Rwanda, Uganda, Tanzania, and South Sudan have collectively outperformed the Kenyan market in terms of banking profits, underscoring the benefits of geographic diversification. Additionally, the pivot into insurance and technology sectors is showing promising signs, with these new ventures already accounting for 3 per cent of the group's total profits. Mwangi emphasized the importance of operational efficiency and cost optimization in maintaining shareholder value, leading to an increased dividend payout. Looking ahead, the group is betting on the insurance business to drive future growth, aiming to safeguard customers' health, life, and wealth through comprehensive insurance offerings. Despite challenges such as growth in non-performing loans, Equity Group remains optimistic about its prospects, leveraging its strong brand reputation and robust risk management practices to navigate uncertainties in the global economy. Mwangi outlined the focus on enhancing lending to the agricultural sector as a key strategy to capitalize on higher-earning assets and bolster margins amid a complex external environment. As the bank continues to innovate and adapt to evolving market conditions, the future outlook remains positive, underpinned by a commitment to resilience and agility.
"We need to transform equity to be resilient to these shocks so that we become agile, we become fairly flexible. How do we also make equity efficient and optimize in the resources we have? - Dr. James Mwangi, Group CEO of Equity Group Holdings"
['Equity Group', 'financial performance', 'regional expansion', 'diversification', 'insurance business', 'risk management', 'cost optimization', 'future growth', 'innovation']