Equity Bank is counting on growing its non-interest income to sustain profitability, which had taken a hit from interest rate cap introduced in Kenya a year ago.

A slump in interest income saw the bank report a three per cent drop in net profit to Ksh14.6 billion ($146 million) for the nine months to September, a situation that could have been worse were it not for the 28 per cent growth in non-interest income from fees and commissions.

The gain in transaction based income is in contrast to the one per cent drop recorded in the same period last year, underlining a change in strategy by the regional lender in response to the interest rate caps.

“The non-funded strategy has increased transaction income by a higher margin of 28 per cent so the loss of Ksh5 billion ($50 million) in interest income is almost recouped by an increase in non-funded from Ksh17 billion ($170 million) to Ksh21 billion ($210 million),” said the bank’s chief executive, James Mwangi, at an investor briefing conducted on last week.

Equity Bank became the first Kenyan lender to break down its transaction income, disclosing the high returns that the bank is getting from offering customers convenience through services such as mobile and agency banking.

Mobile banking

Mobile banking commissions recorded the largest increase, of 135 per cent, to Ksh949 million ($9.1million), following increased use of the bank’s Equitel service.

Notably, the commissions grew at a faster pace than transactions conducted through the channel, which grew at 31 per cent and their value by 41 per cent, signalling an increase in price of services offered.

The high mobile money commissions set the bank apart from most of its competitors given that it is the only lender with its own SIM card (a virtual private network or VPN) while other banks operating mobile banking having to share revenues with a telecommunication operator who owns the SIM card.

Equity Bank also acquired more retail outlets and got petrol stations to adopt its point-of-sales systems by offering better prices, which saw its merchant commissions rise to Ksh892 million ($8.9 million).

The volume transacted by the merchants rose by 16 per cent to Ksh40 billion ($400 million) while commissions rose at a slower 12 per cent underlining the price discount. For every transaction using the bank card in supermarket or petrol station, the bank charges the vendor an average of 2 per cent. The vendor accepts the charges on the grounds that the bank saves him/her cash handling costs and risks.

Agency banking

Agency banking earned the bank commissions of Ksh628 million ($6.2 million), up from Ksh510 million ($5.1 million) in the same period last year on the back of a eight per cent growth in the number of transactions conducted by agents to 49.8 million. This means that the bank’s earnings per commission rose to Ksh12.6 ($0.1) from Ksh11 ($0.9) signalling its increased focus on alternative business channel.

Other commission incomes include salary processing fees, which earned the bank Ksh996 million ($9.9 million), diaspora remittances, Ksh141 million ($1.4 million) and the recently launched American Express card which brought in Ksh205 million ($2 million).

The bank also invested heavily in technology as it sought to diversify its income streams which now sees non-interest income contribute 43.5 per cent of its total income up from 33.7 per cent two years ago.

The strategy has however seen income from branch operations and ATMs witnessing a slight drop. Over the counter charges, ATM commission and other fees collected from the banking halls such as activation fees for dormant accounts and purchase of bankers cheques earned the bank Ksh2.5 billion ($2.4 million) having incurred a drop of Ksh12 million ($115,830).

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