Biggest Kenyan Bank to Dump Government Paper, Boost Lending

(Bloomberg) --

Equity Group Holdings Plc plans ramp up lending after profit in the first nine months of the year jumped and following a decision to reallocate funds from its investments in government securities.

Kenya’s largest lender by market value plans to sell some of the 361 billion shillings ($3.2 billion) it holds in government securities and tap its 180 billion shillings cash reserves to boost lending and earn more interest income, according to Chief Executive Officer James Mwangi.

“We don’t want to be a lazy bank that takes deposits and buys treasury bonds,” Mwangi said in an interview on Monday. “As the loan book picks up, the net interest margins and yields will be widening.”

Mwangi also expects to conclude discussions with the central bank by the end of the year to get approval for risk-based pricing of its loans. Kenyan lenders haven’t been able to apply risk-based pricing for almost three years since the government repealed a law capping interest rates.

“We have agreed on all loan categories except microfinance and digital loans,” Mwangi said.

Equity Group earlier on Monday said net income from January through September grew by 78% from a year earlier to 26.3 billion shillings. Earnings jumped as the economy recovered and the lender generated more income from business loans and government securities.

• Net interest income increased 23% to 48.5 billion shillings as the loan book grew by the same margin to 559 billion shillings, Mwangi said.
• Provisions for loan losses shrank 65.2% to 5.14 billion shillings, while gross non-performing loans increased 7% to 56.2 billion shillings.

Key Insights

• Equity Group is now the biggest bank in the Democratic Republic of Congo, where deposits increased 57%, a faster pace than growth in its home base. The unit may overtake the Kenyan business, driven by cross-border trade financing, according to Mwangi.
• The lender is looking to catalyze cross-border trade by linking small businesses in Kenya with those in other nations, including South Africa, under its trade-finance program, according to Mwangi.
• Kenya expects its economy, East Africa’s largest, to expand by around 6% this year following a contraction in 2020.

Market Insights

• The stock has advanced 44% in the past 52 weeks. The Nairobi Securities Exchange Ltd 10 gained 10%.
• The shares traded 4.2% higher by 11:55 a.m. in Nairobi, the sharpest intraday gain in more than six weeks.
• Equity Group trades at 5.5 times its estimated earnings per share for the coming year.
• NOTE: Equity Group Reserves $5b for Business Loans Over Five Years

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