Oral East Africa>Depositors shrink Equity Bank’s Q1 margins by a quarter At the hut of the story

Written by Otiato Guguyu

Equity Bank's Kenyan unit profits fell almost a quarter in the first three months as depositors repriced the value of their money, making the business of banking very expensive.

Equity Bank Kenya net profits dropped 23.9 percent from Kes7.2 billion to Kes5.5 billion in the first quarter of 2024 signaling tough times for lenders this year.

Interest expenses on customer deposits almost doubled from Kes5 billion to Kes9.5 billion signaling the challenge facing lenders as depositors become more aware of the value of their money.

Angela Okinda, Managing Director, Equity Life Assurance (Kenya) Limited, the lender is diversifying into insurance as margins shrink.

Cost of money

Kenyan banks are facing troubling times as interest expenses on deposits is rising faster than interest income on loans.

Equity Bank staff during the opening of its newest branch in Mariakani. Banks have returned to opening branches with pomp and colour to attract deposits.

Rising interest rates, lucrative bond rates by the government and availability of alternatives such as unit trusts have empowered savers to reprice their money. This means banks are price takers, facing rising cost of funds at a time when loan prices are inelastic on threats of defaults.

Last year, listed Kenyan banks splashed Sh186.3 billion to attract and retain high-value deposits in 2023 as rising interest rates set up fresh competition among lenders for customer funds. According to an analysis of the banks' financial statements covering 12 months to the end of last December, interest paid out on customer deposits rose 48.2 per cent from Sh125. 7 billion in 2022.

Expensive loans

Equity’ bank could not catch up with expenses as depositors demanded higher returns even as rates brought in more income, supplementing high cost domestic borrowing by government.

Although incomes from loans and advances grew from Kes11.8 billion to Kes15.6 billion, expenses grew even faster on cost of funds as high rates become entrenched.

The cost of money is controlled by the Central Bank of Kenya which jerked rates massively last year, to match global high interest rates environment.

Following the adjustment of the CBR from 10.5 percent to 12.5 percent in December 2023 and from 12.5 percent to 13 percent in February 2024, announced it will raise rates in line with the regulators signal.

*Equity Group Managemnt full year results. The Bank proposed a record dividend of Kshs.15.1 billion for a second year running,*

“Equity Bank wishes to notify our customers and the general public, that the bank shall, effective February 20, 2024, adjust Equity Bank’s Reference Rate (EBRR),” the lender said in a notice at the time.

Despite falling fortunes at home, Equity Bank Group continued to pivot to East Africa which rebalanced its income supporting profitability to grow 24 percent from Kes12.3 billion to Kes15.3 billion.