This archive report was first published on 1 July 2021.
Equity Group's DRC Business on the Rise ¶
Friday, July 2, 2021
Equity Group's DRC business is rapidly growing, with the CEO predicting it will overtake the Kenya unit in the next few years.
According to James Mwangi, the CEO of Equity Group, the DRC business has contributed 27% to the group's balance sheet and is growing at an annual rate of 60%.
"In DRC, we seem to have really touched a juggler pipe that will change this group forever," Mwangi said.
The DRC business is expected to rival Kenya in profitability and balance sheet size, with Mwangi predicting it will start rivalling Kenya and rise above on profits and balance sheet size eventually.
Equity Group's DRC business has quickly made it a market leader in financial services, both in balance sheet and profitability as well as customer base.
Given the momentum of growth in DRC, the possibility of standing out and becoming more attractive is so near, Mwangi said.
Equity should now be trading at the same rate as Capitec Bank of South Africa, he added.
Equity Group's dollar balance sheet has also made it easier to deploy resources within the group, with Mwangi citing the ability to deploy the resources within the group as a huge opportunity.
The entire DRC balance sheet is in dollars, making it easier to deploy these resources within the group.
Equity Group's borrowing has risen by 63% to Sh89.6 billion, with Mwangi citing the objective of avoiding a mismatch of short-term deposits with long-term lending.
The interest rates of the borrowings are much lower, and the translation risks are also low because Equity Group borrows mostly in dollars.
Equity Group has also created the position of Group Credit Officer, with Mwangi citing the need to strengthen credit management.
The Group Credit Officer will lead credit underwriting and credit administration within the group, intensify credit monitoring, and where necessary, credit collection.
Equity Group's liquidity ratio stands at 60.6%, against the required minimum of 20%.
"We have a liquid balance sheet with Sh500 billion of cash, cash equivalents, and government securities," Mwangi said.
This reflects the agility to redeploy funding seamlessly as the economies recover from the adverse impact of the Covid-19 multi-crisis.
Equity Group is also seeing opportunities in the Continental Free Trade Area and the growing pace at which regional businesses are doing cross-border transactions.
Equity Group was the most profitable bank last year and has also led in Q1 2021, but Mwangi acknowledged that shareholders may be unhappy with not paying dividends for two years.
"I know shareholders can't be happy with me not paying dividends for two years, and so we want to avoid this when shocks such as Covid-19 come," Mwangi said.
The board has now enacted a policy to pay dividends from 30 to 50% of all the profit after tax going forward.
It has also made a commitment to pay dividends then go back to shareholders for a rights issue in the event of major events like Covid-19.
