Equity Bank

Investees | Kenya | Equity
Our initial stake in Equity Group Holdings (“EGH”) was acquired from one of our shareholders at the time Arise was formed. The stake was subsequently increased through market purchases.

EGH is the largest East African bank and operates across six countries, Kenya, the Democratic Republic of the Congo (“DRC”), Uganda, Rwanda, Tanzania, and South Sudan. EGH originated in Kenya, which is still the bank’s key market with 61% of its total assets located there. The second largest subsidiary is in the DRC (30% of total assets).
Country Overview

Until the COVID-19 pandemic, Kenya was one of the fastest-growing economies in Africa, with an annual, average growth of 5.9% between 2010 and 2018. With a GDP of USD 95bn, Kenya recently reached lower-middle income status and has a diverse and dynamic economy serving as the point of entry to the larger East African market. The Kenyan economy is market-based with a few state enterprises. It is an averagely industrialised nation, ahead of its East African peers, and major industries include agriculture, forestry, fishing, mining, manufacturing, energy, tourism, and financial services.

Banking Sector Overview

The banking sector in Kenya is one of the most developed and competitive on the African continent. It is regulated by the Central Bank of Kenya, which ensures that banks and financial institutions adhere to the country’s banking laws and regulations. There are currently 43 commercial banks in Kenya, including local and foreign banks. The two largest banks by market share are EGH and Kenya Commercial Bank.

Financial inclusion in Kenya has continued to rise, with 84% of the adult population able to access formal financial services. This has largely been driven by digitisation, with Mobile Financial Services (MFS) rising to be the preferred method to access financial services. Mobile banking and digital payment platforms have become increasingly popular, with Safaricom’s M-Pesa being the most widely used mobile money platform. EGH has contributed to the increase in financial inclusion and its strategy is aligned with the financial inclusion goals and of the East African region.

Overall, the Kenyan banking sector is robust and well-regulated, with a diverse range of institutions providing a wide range of financial products and services to meet the needs of individuals and businesses.

Historical Financial Performance

EGH’s total assets grew by a compound annual 25% from 2016 to 2021, with average inflation of 6% during that period. The Kenyan government capped the interest rates chargeable by banks in September 2016, thereby reducing net interest margins. EGH’s results were significantly impacted by the interest caps and while the return on Equity (“ROE”) before interest rate caps averaged between 25% and 28%, it reduced to an average of 21% from 2016 to 2019. The interest rate cap period was followed by the negative impact of COVID-19 when the ROE reduced to 16%, the lowest ever recorded for EGH.

Current Financial Performance

The most recent results have shown a significant turnaround, with ROEs returning to pre–interest rate cap levels of 27%. EGH produced a strong financial performance for the year ended 31 December 2022.

Profit after tax grew by 15% in 2022, driven by a growth of 28% in total income, with non-funded income growing by 33% and net interest income growing by 25%. Total assets grew by 11%, funded by a 10% increase in deposits. EGH held liquidity buffers of 52.1% and maintained a high asset quality portfolio with a non-performing loan (NPL) at 7.7%, against an industry average of 13.3%. The NPL coverage was maintained at 94%. The Group held strong capital buffers, with total capital to total risk-weighted assets of 20.2% (minimum legal requirement of 14.5%). The Group increased its dividend by 33% from KES 3 per share to KES 4 per share.

Development Impact

The Equity Group strategy aims to transform the lives and livelihoods of the people within the countries it operates, both socially and economically. It facilitates this through the provision of leading and inclusive financial and social services, with the social component delivered through its not-for-profit Equity Foundation, established in 2008.

Expanding rapidly, the significant social benefit elicited through the Foundation’s six pillars is highlighted as follows (2022 statistics):

Healthcare – The 85 Equity Afia clinics, established since 2015, provide cost-effective primary and preventive healthcare. Since its inception, the Afia clinics have served 286 000 patients through 1.3 million clinic visits. Focus is placed on educating clients on healthcare, health insurance literacy, and health insurance reform.

SME/MSME development – Offering financial, digital literacy, and business training, including mentorship/coaching, the Foundation has impacted 2.4 million women and youth. In terms of financial services, loans numbering KES 205.1bn were provided, with deposits reaching KES 196.3bn to
916 561 clients in this sector.

Social protection & financial inclusion – Leveraging its large branch and agency network (358 branches, 64 000 agents respectively), and its technology and payment solutions, it has reached more than 4.5 million marginalised persons and vulnerable households through partnering with government and humanitarian and development agencies. The Equity Group served 13.5 million mass retail customers in 2022, providing loans of KES 189.1bn, and holds deposits of more than KES 384.2bn for this sector.

Female inclusion – Equity has provided financial support to 804 949 female customers from rural areas, disbursing loans of KES 45bn and holding deposits of KES 1.3bn deposits from female customers.

Food & agriculture value chain – Through practical financial, business, and good agricultural practice training and education, Equity has supported more than 3.9 million farmers and 216 000 small and medium-sized farming businesses with access to financial services and products. In 2022, it disbursed KES 79.3bn in loans and held KES 281.7bn in deposits to clients and customers within the food and Agric value chain.

Energy and environment – 21.8 million trees have been planted, 376 000 clean energy products distributed (USD 14mn), contributing to ~200 000 metric tons of CO2 reduced through these initiatives.

Wings to Fly scholarship programme – This joint initiative between Equity Group and the Mastercard Foundation, aims to support secondary education for top-performing children from financially challenged backgrounds. The program provides access to leadership training and provides tuition and accommodation fees. Since its inception, the program has provided support to over 26 000 scholars.

Refer to the following link for further insight relating to Equity Group’s developmental impact – https://equitygroupfoundation.com/about-us/