One of Kenya’s most successful banks, Equity, expects pre-tax profit to rise 30%-40% this year, slower than last year’s 111% growth due to investments in expansion, its chief executive said.
James Mwangi, whose bank specialises in rural customers and holds more than half of the accounts in east Africa’s largest economy, told Reuters that because of the tough global conditions and drought at home, he did not expect the market to be disappointed by the forecast.
“It is not that the bank is not generating ... The top line is growing beyond 100%, but we decided to create future business whereby we have focused on investing and creating a new earning platform.”
Mwangi said in the last year, Equity had expanded operations in Kenya with another 62 branches, an investment bank, a shares custodial service at the bourse and an insurance agency.
“This is a period of investing.”
Mwangi said the bank’s shareholders had resolved to buy into National Bank of Kenya, a rival that is being put up for sale by the government in an 8 billion shilling privatisation programme.
“We are waiting for them (the privatisation commission) to give out the terms. Equity would be going for a controlling stake ... a subsidiary status would even be better. All the decisions will hedge on what the term sheet will look like.”
Over the past year, Equity also ploughed 3.5 billion shillings ($44.8m) into Uganda after it acquired Uganda Microfinance Limited through a share swap, made a $15m initial investment in a South Sudan subsidiary and raised its stake in mortgage firm Housing Finance to 25%.
“If you reduced the cost of all those investments, our cost to income ratio would be going down by about 10%, showing how profitable the bank would have become,” Mwangi said. The ratio stood at 66% in the first quarter.
All the new investments will start making a positive contribution to Equity’s bottom line in two years if it’s a worst case scenario, the chief executive said.
Reuters
