Equity Group's regional subsidiaries grew their contribution to the bank’s net profit by a third to Ksh15.3 billion ($116.6 million) in the year to December 2023, cutting the dominance of the Kenyan unit whose contribution dipped last year as increased provisioning for non-performing loans hit profitability.

The lender’s net profit fell by 6.48 percent to Ksh41.98 billion ($319.8 million) in 2023, largely on account of increasing the provision for bad loans to Ksh35.25 billion ($267.8 million) from Ksh15.4 billion in 2022.

This was after a jump in its gross volume of bad loans to Ksh114.6 billion ($873 million) in December 2023 from Ksh63.13 billion ($481 million) in 2022, majorly attributed to tough economic conditions in Kenya, including high inflation and currency depreciation.

As a result, the Kenyan banking unit saw its net profit decline to Ksh26.7 billion ($203.4 million) in 2023 from Ksh33.4 billion ($254.5 million) in 2022.

Read: Rwanda leads region in minting profits for Nairobi banks

The slack was picked up by the bank’s regional subsidiaries, mainly the Equity BCDC in DR Congo which doubled its net profit to Ksh12.1 billion ($92.2 million) from Ksh5.8 billion ($44.2 million) in 2022.

Equity Bank Rwanda saw its contribution rise to Ksh4.2 billion from Ksh2.8 billion, partially boosted by the integration of Cogebanque in December after the conclusion of Equity's acquisition of the Rwandese lender in November 2023. 

Equity has been betting on the regional units to grow its business—particularly the DRC subsidiary—seeing them as having more headroom for growth due to their lower bank account penetration ratio compared to Kenya.

“The group is no longer challenged by a single sovereign risk. This is now well spread within the six countries within which we operate,” said Equity Group chief executive officer James Mwangi yesterday.

“The critical thing is how we are performing in DRC. We spoke in the past that the DRC operation would at some point challenge Kenya, and evidence is now on the table, based on how it has performed in terms of return on assets.”

Read: KCB profit drops to $69m on DRC unit costs

The difference in the performance of the regional units compared to Kenya was also a factor of macroeconomic conditions, where Kenya fared worse in terms of food prices and currency depreciation compared to her neighbours.

Mr Mwangi said that the bank refrained from adjusting the base interest charge on personal loans in Kenya that were active as of January 2023 in recognition that borrowers were under strain from high inflation, even as the Central Bank of Kenya raised its base rate progressively to 12.5 percent by the end of the year. 

These loans accounted for 32 percent of its loan book, Mr Mwangi said, leading to interest income growing at half the pace of interest expenses. 

Adjusting the base interest rate for the retail borrowers would have added up to Ksh36 billion in non-performing loans, as per Equity estimates.

Equity's loan book was up by 26 percent to Ksh887.4 billion ($6.8 billion), while customer deposits were up 29 percent to Ksh1.36 trillion ($10.4 billion).

Net interest income rose by 21 percent to Ksh104.2 billion ($794 million), while nonfunded income was up 30 percent to Ksh75.9 billion ($578.3 million). The bank's costs rose by 57 percent to Ksh178.2 billion, mainly due to the higher provisioning for bad loans. 

The bank maintained its dividend for the year at Ksh4 per share–or a total payout of Ksh15.1 billion– despite the fall in net profit.