Equity Group shrugs off profit fall, announces Sh7.5 billion dividends

Equity Group CEO, Dr James Mwangi

East Africa’s biggest banking group by customer numbers, Equity Group Holdings Ltd has shrugged off a 4.6 percent net profit decline for the 2016 trading year with a lavish dividend party for its shareholders.

In the group’s financial results released today, the bank has recommended a dividend payout of Sh2.00 per share to its 29,000 who own 3.77 billion shares even as net profit fell to Sh16.5 from 17.3 announced the previous year.

Group Managing Director Dr. James Mwangi noted that this year’s dividend payment ratio is higher than last year.

“This year’s dividend payment ratio is 45.6 percent compared to 43.35 percent last year,” said Mwangi.

The net profit decline was attributed to 173 percent increase in loan loss provision.

Mwangi said the banking group increased the loan loss provisions by Sh4.19 billion  to write off loans by micro-enterprises which had increased by 9 percent during in the 12 months.

“The group decided to write off all loans that had not performed for 180 days so that we can have a clean and sound balance sheet,” Mwangi said.

Mwangi said the banking group’s Kenyan business operated in a hostile environment that forced to change its strategy to maintain profitability.

A law capping interest rates came into force in Kenya, September last year, sending most banks, including Equity into the drawing board to reorganises their businesses in the new reality. The strategy saw the bank slow down on lending to micro-enterprises and agriculture.

“We decided to focus on getting quality loans and building up our funding base. This is what prudent banking means,” he said.

Lending decline 5 percent driven by a 34 percent, 22 percent and 8 percent slow down of lending to large enterprises, micro-enterprises and agriculture respectively.

Instead, the bank snapped up government securities acquiring instruments worth Sh92 billion for the Kenyan business and Sh100.6 for the group.

“People have always thought that the highest yield in banking is on loans, but today the interest caps still on, government securities have the highest yield,” said Mwangi on the decision to channel its liquidity to government debt instruments.

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