Equity Group shareholders will go for the second consecutive year without dividends after the board on Monday froze the payout as net profits fell 11.6 per cent to Ksh20 billion (about $182.3 million).
Summary
- The lender posted a drop in earnings booked a year earlier on the back of a five times jump in provisioning for loan defaults in appreciation of economic hardships facing borrowers in the Covid-19 environment.
The lender posted a drop in earnings from Ksh22.39 billion ($204 million) booked a year earlier on the back of a five times jump in provisioning for loan defaults in appreciation of economic hardships facing borrowers in the Covid-19 environment.
Loan loss provisioning rose from Ksh5.3 billion ($48.3 million) to Ksh26.63 billion ($239 million), piling pressure on the bottom-line despite growth in operating income.
Net interest income rose by 22.6 per cent to Ksh55.15 billion ($502.6 million), while non-interest income grew 25 per cent to Ksh38.51 billion ($350.9 million).
However, the board failed to recommend any dividend on this performance, extending the freeze to two years.
Equity’s last dividend payout was on the 2018 performance, with shareholders taking home Ksh7.54 billion ($68.7 million).
The dividend freeze is despite Equity having recorded the softest fall in earnings compared to KCB (22 per cent), Co-operative Bank (24 per cent), StanChart (33.9 per cent) and Stanbic with 18.6 per cent decline.
KCB, Co-op, StanChart and Stanbic all defied the profit falls to pay out dividends, citing strong capital buffers and the need to support investors.
Equity, the second-largest bank by assets, had last year raised the payout to Ksh9.43 billion ($85.9 million) but recalled it citing the need to preserve cash in the Covid-19 business environment.
The lender’s latest disclosures show that retained earnings have jumped by 20 per cent to Ksh118.76 billion ($ billion).
Equity, with a balance sheet size worth Kshs. 673.7B at the end of 2019, has been listed at number seven among the top 10 Banks in Africa in 2020 with a score of 5.82 in the overall category of the best performing banks.
This is according to The Banker’s Top 100 African Banks ranking for 2020.
This year’s ranking shows stabilisation in the finances of the majority of African major lenders. The ranking, which tracks the health and wealth of the African banking sector, used an array of metrics including the overall growth performance, financial soundness, profits on capital, leverage and return on risk.
In the year under review, Equity improved on its performance with a 14% profit after tax growth to Kshs 22.6B from Kshs 19.8B in 2018. The impressive performance registered during an interest capping period was driven by a 23% growth in loan book to Kshs 366.4B from Kshs 297.2B in 2018.
Dr. James Mwangi, Managing Director and CEO said that, the enhanced efficiency and cost optimization saw cost-income ratio improving to 51% from 52.4% in 2018.
The Group has maintained its yield on interest-earning assets at 11.2% despite the challenge of interest capping and declining yield curve.
Innovation has also been a great enabler in driving growth and is already registering efficiency gains from digitization.
On financial soundness, Equity ranked number 5 on the backdrop of an agile balance sheet with a liquidity of 52.1%, a loan deposit ratio of 75.9% and a core capital to risk-weighted asset ratio of 19.8%.
The balance sheet reflects solid diversified funding with customer deposits constituting 72% of the total funding, shareholders and long-term borrowing contributing 17% and 8% respectively.
The financial soundness is further enhanced by a strong capital base, which is well within both internal and regulatory limits, solid business performance and Net loans which constituted 54% of the total assets while government securities and cash and cash equivalents contributed 26% and 13% of the total asset allocation respectively.
“The ranking is an indication that Equity remains robust, despite the challenging operating environment. We have developed and adopted a sustainable business model to cushion the business as well as boost value creation for shareholders,” added Dr. Mwangi.
The Banker Top 1000 World Banks 2020 ranked Equity Bank 754 in balance sheet size overall in its global ranking, 62nd in soundness (Capital Assets to Assets ratio), 55th in terms of Profits on Capital and 20th on Return on Assets.
