Equity Group is set to pay shareholders a record dividend of 11.3 billion shillings or 3 shillings per share for the year ending December, when its net profit nearly doubled to 39.1 billion shillings.
The lender reinstated the dividend after freezing payouts in 2019 and 2020 to conserve cash following the Covid-19 pandemic.
Equity’s last dividend before the coronavirus crisis was for 2018, when it made a cash distribution of 2 shillings per share, totaling 7.5 billion shillings.
The country’s biggest bank had offered a higher payout of 7.4 billion shillings or 2.5 shillings per share for the financial year ending December 2019, but revoked the plan as the pandemic unfolded. .
It maintained the dividend freeze the following year when it also invested $95 million (10.8 billion shillings) in acquiring a majority stake in Banque Commerciale du Congo (BCDC).
“We will pay a dividend of 11.3 billion shillings, an increase of 50% from the last dividend,” said James Mwangi, managing director of Equity.
Equity’s net profit of 39.1 shillings for the year ended December is a record for the bank and the industry, topping the 34.1 billion shillings posted by KCB Group — which was previously the largest bank by earnings and assets.
cooperative bank was the third most profitable bank among banks reporting results with a net profit of 16.5 billion shillings, followed by Absa Bank Kenya (10.8 billion Sh), Standard Chartered BankKenya (9.04 billion Sh) and Stanbic Fund (7.2 billion shillings).
Equity’s dividend is also the largest in Kenya’s history ahead of KCB’s 9.6 billion shillings, StanChart’s 7.1 billion shillings, Co-op Bank’s 5.86 billion shillings, the 5.9 billion shillings of Absa and the 3.55 billion shillings of Stanbic Holdings.
As a share of net profit, however, Stanchart’s dividend is the most generous at almost 80%, followed by Absa (55%), Stanbic (49%), Co-op Bank (35%) and Equity and KCB at 28% each. .
Equity’s improved profitability during the reporting period was driven by higher interest income, non-interest income as well as lower operating expenses on reduced provisioning for irrecoverable debts.
The bank cut its provision for loan losses to 5.8 billion shillings from 26.6 billion shillings in 2020, attributing the move to improved loan recovery which saw the stock of bad loans fall to 53, 8 billion shillings against 59.3 billion shillings.
Mr Mwangi said Equity had pledged to reduce net defaults by more than 10 billion shillings this year, signaling an aggressive recovery strategy going forward.
“Let me announce that what my team committed to is now a public promise. They have committed to reduce net NPLs [non-performing loans] from 44 billion shillings to 30 billion shillings,” Mr Mwangi said.
The bank also recorded an increase in interest income to 94.3 billion shillings, supported by strong growth in income from government loans.
Interest income from government securities increased from 20.9 billion shillings to 29.4 billion shillings.
It plans to increase its loan book this year by shifting away from government securities, Mwangi said during an investor briefing. Equity had parked 394 billion shillings in government securities at the end of last year, double the amount from the previous year, and it will shift some of it to higher-yielding customer loans, it said. said Mr. Mwangi.
“There is a huge opportunity for (asset) reallocation,” he added.
Interest on loans to customers fell from 52 billion shillings to 68.8 billion shillings, indicating tight margins following delays in the approval of risk-based loans.
Equity expects higher returns from its client loan portfolio this year after the Central Bank of Kenya (CBK) approved its lending model which will allow it to raise rates by up to 18.5% from the current average of 13.5%.
It became the first bank to publicly reveal that the regulator had approved the risk element in its lending formula, which allows banks to lend to riskier customers but at higher rates to cover the cost of defaults. part of them.
Mwangi said the new pricing model will have a base of 13%, which is the average rate applied to five-year government bonds.
Small businesses will get loans at rates between 14% and 16% from Equity, while unsecured loans will attract up to 18%.
The bank has moved ahead of others who have yet to gain approval to increase revenue from customer loans.
Several bank executives had protested to the International Monetary Fund (IMF) last year over the CBK’s reluctance to approve their demands for higher loan costs following the removal of interest rate controls on 7 November 2019.
Banks have been keen to price loans to different customers based on their risk profile, but this flexibility remained a mirage after the CBK stepped in as the de facto controller of the cost of credit.