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Kenya: Equity bets big on Uganda subsidiary for profit growth

Mwangi

Equity Bank is looking at its Ugandan subsidiary as its best bet for growth in the coming years as its Kenyan and other regional markets slow down due to regulatory interventions, political squabbles and subdued commodity prices on the global markets.

Equity’s Ugandan subsidiary posted a 37 per cent jump in profit in the nine months to end of September, contributing Sh700 million to the group’s profit after tax.

The lender on Monday reported a three per cent drop in after-tax profit up to the third quarter of its financial year, attributed to lower earnings from interest income in the home market where rate caps law was introduced in September 2016.

Group CEO James Mwangi said the lender plans to invest more in Uganda as the relative political stability in the landlocked nation and an expected oil boom hold bright prospects for banking. He did not however disclose the capital injection budget for the country.

“It (Uganda subsidiary) is not becoming better than Kenya in size but return on asset and return on equity is much better. With the hope of oil, it appears that Uganda will receive about $20.4 billion in the next four years from their oil industry,” Mr Mwangi said during an investor briefing announcing the lender’s nine-months performance.

The bank, which is the largest in Kenya by customer numbers, has fully-owned subsidiaries in Uganda, Tanzania, Rwanda, South Sudan and the Democratic Republic of Congo (DRC).

“Uganda is likely to become a very significant economy in the East African region on account of oil. [It] has also opted to invest significantly in its infrastructure and doesn’t have political uncertainty as in Kenya. You may not agree with their politics but it has no political uncertainty.”

Slow credit growth

The rates cap has fuelled a slowdown in credit growth to 1.5 per cent in June this year from a high 8.6 per cent in June 2016. A politically charged environment this year has also hurt business in Kenya.

The flat profitability is attributable to a drop in interest income on loans.

Equity Bank grew profit in South Sudan despite political unrest in the country, something Mr Mwangi attributed to the bank “aligning to the environment”.

Only its DRC subsidiary posted a 7 per cent drop in profit after tax to about Sh500 million mainly due to increased investment in the branch network there and a difficult business environment occasioned by a political crisis and lower earnings from copper and cobalt export.

“We have increased the branches from 11 to 32 and we are now ranked in terms of net worth the second-largest in DRC,” Mwangi said.

“We see the political risk as having dissipated and the economic shock having decreased significantly. We expect a very good year in the coming year.”

Credit: Business Daily

Ghana Business News