One of Kenyaâ€™s most successful banks, Equity, expects pre-tax profit to rise 30%-40% this year, slower than last yearâ€™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 Africaâ€™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.
â€œIt 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.â€
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.
â€œThis is a period of investing.â€
Mwangi said the bankâ€™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.
â€œWe 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.â€
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%.
â€œIf 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,â€ Mwangi said. The ratio stood at 66% in the first quarter.
All the new investments will start making a positive contribution to Equityâ€™s bottom line in two years if itâ€™s a worst case scenario, the chief executive said.