Otiato GuguyuEquity Banks' size helped the region's largest local lender absorb a surge in the cost of money in Kenya, which has depressed the bank’s performance at home.
Equity Group Holdings has reported net profits of Kes29.6 billion in the first half of the year, a 12.5 percent rise in profitability even as the Kenyan subsidiary reported a decline in margins by up to 10 percent.
Equity Bank Kenya's profits fell from Kes15.5 billion to Kes13.9 billion mainly on the back of expensive money after the Central Bank of Kenya raised interest rates and customers demanded higher returns on deposits.
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The lender's cost of funds, which is the interest paid on deposits hiked from Kes11.1 billion in June last year to Kes18.8 billion in the first half of this year outpacing the returns from loans.
Equity earned Kes30.5 billion from loans a jump from Kes26.2 billion, at a time when the bank reduced its loans to customers.
The decline of loans advanced to customers from Kes459 billion to Kes423 billion means the bank made money from charging higher interest rates, which could fuel defaults.
Bad loans trouble
Despite this increase in defaults, the bank was a bit conservative in underwriting the projected loan losses, increasing provisioning by Kes353 million from Kes3.6 billion in June last year to Kes3.9 billion this year.
The spiraling problems of falling economic activity, curtailed loan growth, and increasing defaults amidst a global and local high interest rate regime, have been hedged off by Equity Groups' geographical size, which seems to be giving the lender an advantage.
The ability to mobilize cheaper deposits across East Africa, huge dollar assets and faster growth in the regional market helped offset the Kenya blues.
EAC to the rescue
Equity Group Holdings grew its asset size to Kes1.7 trillion on a growth in deposits in banking institutions locally providing much-needed liquidity to smaller lenders as well as banks abroad as it becomes increasingly profitable to hold dollar assets.
The bank's huge assets meant that even though it slowed its lending at the regional level, with higher rates and larger assets, it was able to sweat Kes53.5 billion in interest incomes, almost Kes10 billion more than last year.
Equity was also able to balance off the cost of funds at the Group level which increased from Kes16.1 billion to Kes21.8 billion.
This lifted Equity Group holdings net profits to Kes29.6 billion up from Kes26.3 billion in a similar period last year.
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