Equity’s Mobile Banking Strategy Pays Off As Q3 Profit Hits Sh15bn

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Equity Bank announces Q3 results with Innovation as the leading factor to the Group’s performance

Equity Bank Kenya yesterday announced their third quarter results for the year ending September 2016. According to the results, they continued to demonstrate resilience against the banking sector turbulence in Kenya that attributed to the failure of 3 banks late last year that resulted in uncertainty in addition to the capping of interest rates. Ever since President Uhuru announced the passing of the Bill that regulates the interest rates induced on bank loans and deposits in August 2016, shares of banks plunged significantly with most banks struggling with high retail exposure and non-performing loans due to the slow rate at which customers repay these loans.

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Equity Bank CEO DR. James Mwangi. Image Credit: Arthur Kuwashima

According to a statement made by Dr. James Mwangi, a strong governance structure is the only thing that can give certainty of how decisions are made and how much a bank grows, and to him, that is one of the factors that saw the bank’s profits boost to up to Kshs 15 billion for the year ending 30th September.

He also pointed out that innovation and efficiency focus to what customers need have resulted in the Group’s steady growth. Several banks have had to pursue technology-driven strategies to lower costs and engage more with customers whose interest is shifting from visiting branches and being able to transact at their own peril. Dr. Mwangi said that Equity Bank’s early and continuing investment in technology as well as its committed progressive transitioning from the traditional heavy fixed cost based brick and mortar operation to an increasingly digital driven variable cost based model aligns perfectly with the observed changing preferences by banking sector customers.

The most impactful innovation in contributing to efficiency and profitability was Equitel – the Group’s mobile banking platform which within its first full year of operation in Kenya managed to capture 15.2% of the total mobile money transfer market in both value and volume of transactions. Mobile digital banking processed nearly 3.5 million loans totaling Kshs.30 billion which represented 84% of the loans granted by the bank in Kenya. The quality of the loans disbursed through the mobile digital platform during the year was excellent with a realized recovery rate of 98%.

It’s interesting to note that the 25,000 Agency Network has been instrumental in digitizing cash and the pilot phase of digitizing the bank has proven to be quite successful especially in the period of one year.

Equitel grew mobile transactions to up to 150.8 million in one year handling more transactions processed by branches, ATMs and agents combined.

The banks agents also processed 46 million transactions compared to branches and ATMs which together processed 35 million transactions over the period. Merchant banking digital payment increased by 38% while the value of the merchant transactions grew by 35% demonstrating the greater acceptance of digital payments at the retail level.

Dr Mwangi revealed that at an average 200 Equity branches issued 400,000 loans compared to the 3.5 million loans issued via the mobile platform worth Kshs 30 billion. This number can get divided into an average of 50,000 loan requests per day on weekdays with the number skyrocketing to over 120,000 on average, during the weekends, especially on Sundays. Over 40% of the applicants qualify for these loans, with three-quarter of this number coming from the SME sector. He said that this growth can be attributed not just by the fact that more customers are switching to digitized banking, but by the fact that transferring money from customers with Equitel SIM cards can send money to another person with the SIM card for free.

He also mentioned that at this rate the bank is optimistic that they will have captured over 30% of the market share by the end of the year. Mobile digital banking processed nearly 3.5 million loans totaling Kshs.30 billion which represented 84% of the loans granted by the bank in Kenya. It is also interesting to note that these loans issued via the platform have a 98 percent loan recovery rate, showing just how popular and efficient the disbursement of loans via mobile is. With this, he also mentioned that the numbers seen by the mobile transactions are going to significantly grow even as the bank migrates additional services onto its mobile platform.

The launch of the bank’s new digital banking platform ‘Eazzy Banking’ crowned the success of the one year pilot of digital Equitel mobile banking. With its online, internet based, open interoperable mobile banking channels with downloadable applications including cash and liquidity management products for corporate and SMEs; the launch facilitates access of the banking capability by the Bank’s customers through the release of a series of 10 Eazzy banking solutions and tools. The platform shows a lot of promise in repositioning of the bank’s offerings through innovative products and channels.

Some other key highlights from the bank’s Q3 results include:

  • Net interest income grew by 26% to Kshs.32.3 billion up from Kshs.25.6 billion while total costs increased by 13% to Kshs.27.4 billion up from Kshs.24.2 billion
  • Profits in the country grew by 20% while the profit before tax in Uganda and Democratic Republic of Congo grew by 130% and 16% respectively.
  • Regional banking subsidiaries contribute 30% of the group’s total deposits, 18% of the total loans and 25% of total group asset, signifying growing diversification which places the Group in good stead to sustain its growth momentum going forward.
  • Strong customer deposits growth in Kenya of 22% (Kshs 48 billion) more than off-set a decline in deposits in south Sudan by 81% (Kshs 36 billion) resulting in an overall growth in customer deposits at the group level of 5%. Liquidity ratio has in Kenya was enhanced from 25% to 45% in and Capital ratio remained strong providing significant headroom for growth by the group.
  • Return on Equity (RoE) for the Group increased from 25% over the same period last year to 26% while Return on Assets increased 4.3% to 4.5%.
  • Equity Bank has been recognized both locally and internationally as the most innovative Bank in Africa and best mobile banking services provider in Africa by the Banker. Global Credit Rating maintained Equity’s investment grade at AA- with a stable outlook while the Group was ranked 8thbest bank globally in return on assets for the second year running by the Banker ranking of the top 1000 worlds banks 2016. Equity Group also retained its global award winning status by being named by Euro money Awards of Excellence as Africa’s best bank 2016.
  • Equity Group has continued to invest in social impact programmes through Equity Group Foundations with resounding success in society. To date 12,377 deserving pupils have received comprehensive secondary school scholarships through the ‘Wings to Fly program’; 3405 have gone through the Equity Leaders Programme with 329 of them having joined/alumni of global universities. 14,000 Kenyans have been reached with renewable energy products. In agriculture, 500,000 peasant farmers have been transformed to agribusiness. Nearly 1.3 million youth and women have received financial training (FiKA) while 25,303 have received entrepreneurship training. This has helped to deepen financial inclusion with loans worth KShs 32 billion availed to women under the Fanikisha products and loans worth Kshs 18 billion accessed by youth.

The perfect convergence of banking and telecom with the advantage of innovative technology is the key to improving banking systems in Africa. The use of digitization in banking operating systems favors the use of online, mobile channels and Agency network which are cost effective, variables cost 3rd party channels which will play a key role in the digitization of cash, reducing operational costs and improving cost income ratio in the long run.

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