Against the backdrop of a challenging operating environment, Equity Bank has rolled out a strategic operational plan
In a recent investor briefing, Equity Bank revealed its strategy of adjusting and adapting to the new challenging environment caused by the capping of interest rates and other relational factors. Operating on this model, the first tier bank which recorded a pre-tax profit of Kshs 13.3B for the period ended 30th June 2017 has demonstrated resilience at a time when the banking industry growth rate is almost flattening out.
Speaking during the Investor Briefing, Equity Bank CEO, Dr. James Mwangi said “2017 is proving to be an extension of the tough operating environment witnessed in 2016 but as a Group we have already developed and adopted a sustainable business model to cushion the business as well as boost value creation for shareholders. Innovation has proved to be a great enabler in driving growth. We are already registering efficiency gains from digitization.”
Apart from the milestones projected and already being witnessed from the digitization process, Equity bank has posited a number of other areas of focus in a bid to weather the current tough conditions in the banking industry.
Among these are: non-funded income growth; regional diversification; strengthening liquidity and balance sheet agility; treasury operations; asset quality and efficiency and cost optimization.
This strategic model has no doubt kicked off as the results show that the non-funded Income which constitutes 42% of the Group’s total income grew from Kshs. 10.8B to Kshs. 13B representing a 20% rise from the same period last year.
This was mainly driven by mobile banking commissions which grew by 37% to Kshs.649.7M from Kshs 148.8M. Trade Finance grew by 25% to hit Kshs 532.8M from Kshs 426.3M, Merchant commissions grew by 12% to Kshs 579.6M from Kshs 519.4M while Agency revenue grew by 27% to Kshs 424.5M up from Kshs. 333.8M in the same period last year.
Considering that other regional countries are not affected by the capping of rates, the Group has been keen enough to cash in on this by diversifying regionally. The benefit of this move is already fruiting as the regional banking subsidiaries’ contribution to the Group’s pre-tax profit doubled from 5% to 10% with Uganda PBT growth of 139%, Rwanda 75%, Tanzania 55%, and DRC 20%.
Through cost optimization the Group continues to transform its cost structure especially on the delivery channels from fixed to variable cost channels with the bulk of transactions being processed via mobile, agency and merchants’ outlets. This has led to a cost income ratio of 44.5% for Kenya. The Group’s total costs reduced to Kshs. 17.6B down from 17.9B for the same period last year.
Equitel platform Group’s MVNO banking transactions grew by 42% to 138.7M from 97.8M, Agency banking transactions grew by 10% to 33M from 29.9M while merchantstransactions grew by 20% to 5.3M from 4.4M for the period under review showing the customers growing preference of alternate delivery channels.
The Group’s consistent pursuit of a sustainable business model that is heavily focused on innovation has seen Equitel market share grow to nearly 25% of the value of mobile banking transactions in Kenya. The successful implementation of the digitization strategy is bearing fruits with Eazzy Banking products demonstrating a phenomenal uptake.
EazzyBiz has hit Kshs11.1B per month in value of transactions, EazzyPay is moving Kshs 319.5M per month and now accounts for 30% of the mobile commerce market share, and EazzyBanking App’s transactional value stands at Kshs 6.5B per month after only six months of launch.
The Group also continues to concentrate on Asset Quality that has seen it achieve NPLs of 7.3% against an industry average of 9.9%. It has positioned itself for the future by increasing its liquidity to 54% and creating an agile balance sheet with government securities contributing 23% of the total balance sheet.