Equity sees its DRC business to overtake the Kenyan entity
Friday, July 2nd, 2021
- The Business Daily spoke to its CEO James Mwangi about the growth position of subsidiaries, the changing phase of business in the Covid-19 environment and the emerging opportunities.
Equity Group #ticker: EQTY finished as Kenya‘s most profitable lender last year and has sustained that run in the first quarter of this year with 64 percent growth in net income to Sh8.7 billion.
The Business Daily spoke to its CEO James Mwangi about the growth position of subsidiaries, the changing phase of business in the Covid-19 environment and the emerging opportunities.
THE SHARE OF THE SUBSIDIARIES IN THE EQUITY GROUP BUSINESS WAS INCREASED. WHERE WILL YOU SEE IT IN THE NEXT THREE YEARS?
The return on investment of the Kenyan entity reached four percent in 16 years. Uganda took 14 and Rwanda 12.
This means that we are a learning organization and that we can quickly incorporate knowledge into the company. So in the Democratic Republic of the Congo, we are likely to do this in the next three years.
WHAT’S THE PLACE OF DRC BUSINESS IN THE EQUITY GROUP?
In the DRC we really seem to have touched a juggler whistle that will change this group forever.
The DRC business will fundamentally change the Equity Group. The DRC currently contributes 27 percent to the company’s balance sheet and is growing at around 60 percent annually and could overtake Kenya between the third and fifth year.
Even in terms of profitability, the DRC will begin to compete with Kenya and eventually exceed in profits and balance sheet size.
DRC has quickly made us a leader in financial services, both in terms of balance sheet and profitability, as well as on a customer basis.
With the growth momentum in the Democratic Republic of the Congo, the opportunity to stand out and become more attractive is so close. Shares should now be trading at the same price as Capitec Bank of South Africa.
YOU MENTIONED THAT 49 PERCENT OF YOUR BALANCE SHEET IS EXECUTED IN DOLLARS. WHAT DOES THAT MEAN FOR YOU?
The greatest opportunity is the internal financing of cross-border transactions. The possibility of using the resources within the group becomes very easy and flexible with this dollar balance sheet.
We have great opportunities in that [Africa] Continental Free Trade Area and the pace with which regional companies conduct cross-border transactions.
The entire DRC balance sheet is in dollars and the ability to use these resources within the group will be very flexible.
THE FINANCIAL EQUITY GROUP INCREASES 63 PERCENT TO EUR 89.6 BILLION. SH increased. WHAT’S BEHIND THIS?
The aim of borrowing is simply to avoid a mismatch between short term deposits and long term loans. Using short-term deposits for long-term projects would mean risk of mismatch.
The interest rates on the loans we take out are much lower and the translation risks are also low as we borrow mostly in dollars.
YOU HAVE CREATED THE POSITION OF THE GROUP CREDIT OFFICER. WHAT DOES IT MEAN?
We have decided to strengthen our credit management by building up the Group credit function and creating a position as Chief Credit Officer.
The role of the Chief Credit Officer is to lead credit underwriting and administration within the group, intensify credit monitoring and, if necessary, credit collection.
DO YOU SEE GREEN SHOOTS WITH A LIQUIDITY RATE OF 60.6 PERCENT VS THE MINIMUM OF 20 PERCENT?
We have a liquid balance sheet of Sh500 billion in cash, cash equivalents and government bonds.
This reflects the flexibility to seamlessly reallocate funds as economies recover from the negative effects of the Covid-19 multi-crisis.
We believe we have learned lessons from global manufacturing supply chains, and many will try to establish regional and national supply chains to avoid disruption. We also see opportunities to tap into the continental free trade area and the growing pace at which regional companies conduct cross-border transactions.
EQUITY WAS THE MOST PROFITABLE BANK IN THE LAST YEAR AND BECAME EFFICIENT IN THE 1ST QUARTER OF 2021.
I know shareholders can’t be happy if I don’t pay dividends for two years and that’s why we want to avoid that when shocks like Covid-19 come.
The board has now issued a guideline. It has committed itself to pay 30 to 50 percent of total profit after taxes in the future and to institutionalize this.
It was made as a guideline that on future major events like Coivd-19, we would pay the dividends and then go back to shareholders for a rights issue.