Equity Group’s decision to increase provisioning for loan defaults by nearly nine terms has costed the company Ksh 2.90 billion worth of profit.
The lender’s half-year net profit dropped by 24.3% from Ksh 11.92 billion to Ksh 9.02 signifying a Ksh 2.90 billion drop. The company decided to increase provisioning for loan defaults to reflect the Covid-19 triggered economic difficulties facing borrowers.
Despite the fall in profit, Equity Group’s net interest income grew by 16.9% to Ksh 24.6 billion as the lender’s loan book expanded by Ksh 70.7 billion or 22% to Ksh 391.6 billion.
The lender increased loan provisioning 8.7 times to Ksh 8.02 billion in comparison with Ksh 918.5 million that had been made in the preceding similar period.
The results mean Equity will become the fourth lender in the country to post a drop in profit as the Kenyan economy still recovers from knocks occasioned by the coronavirus pandemic. The drops in profit have mostly been caused by increased provisioning for bad debts given the economic hardships facing borrowers.
KCB Group’s net earnings tumbled by 40% to Ksh 7.5 billion, while that of the Co-operative Bank of Kenya fell 3.6% to Ksh 7.3 billion. Stanbic Bank’s half-year profit dipped by 37.2% to Ksh 2.55 billion.
However, it is not all bad news for Equity whose half-year profitability is now the highest in the sector. The last time Equity beat KCB in full-year earnings was in 2014.
The drop in profits can also be attributed to waivers on transfers between banks and mobile wallets such as M-Pesa as the Central Bank of Kenya (CK) moved to lower cash handling in the wake of the virus outbreak.
Equity Group CEO James Mwangi had in June said the lender was losing Sh120 million per month from the CBK directive.
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