Banking crisis gifts Equity Bank Sh35 billion in customer deposits

Equity Group’s liquidity ratio has more than doubled its minimum statutory requirement after it got an additional Sh35 billion customer deposits in the last financial year.

According to its financial statements for the year ended December 31, 2016, the group – which operates in six countries – benefited from the deposit flight that saw customers move money to banks they considered more stable.

Equity’s liquidity ratio, a yardstick for measuring a lender’s ability to meet short-term liabilities, is now at 47.6 per cent against the statutory minimum of 20 per cent.

This is from 33.2 per cent at a similar time last year.

Last year, Dubai Bank, Imperial Bank and Chase Bank faced serious integrity crises, forcing the regulator to put them under receivership.

This resulted in panic withdrawals, leading to skewed distribution of deposits among the 43 banks.


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“Banks were initially perceived to be of the same risk, but after the receivership, two curves emerged on the interbank (market) and banks perceived to be of high risk were borrowing at much higher rate. Customers had to move money to where they felt safe,” said Equity Group Chief Executive James Mwangi during an investor briefing on Wednesday in Nairobi.

During this period, Equity Group saw its customer deposits increase by Sh35 billion, or 12 per cent, to Sh337.2 billion.


The growth trails that of region’s largest lender, Kenya Commercial Bank (KCB), which saw deposits grow by 5.6 per cent.

However, in terms of deposit volumes, KCB still holds more deposits (Sh448.2 billion).

Combined, the two banks are now holding money that is enough to finance a third of Kenya’s proposed 2017/18 budget of Sh2.6 trillion.

Despite the amendment in the Banking Act where lenders are now required to pay customers seven per cent interest on their deposits, Equity Bank is benefiting from non-interest bearing deposits.


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Its latest results show that non-interest-bearing deposits are Sh237.2 billion or 70.3 per cent of total deposits.

Even with the group’s net loans and advances to customers shrinking by 5 per cent to Sh266 billion, Mwangi said the bank will not be in a hurry to lend in volumes.

Instead, he explained, the bank has been forced to tamper with its strategy to focus on quality lending.

The change in focus comes in the wake of gross Non-Performing Loans (NPLS) more than doubling to force the bank to make a 173 per cent provision for the loans.

“With the interest rate cap, we can no longer price customers’ risks. The Government is borrowing at a higher interest rate than it wants the private sector to. What decision then, will a rational lender take?” posed Mwangi, adding that the bank will be forced to hold the excess liquidity in Government securities.

In the last financial year, the group made Sh7.88 billion from selling Government securities, an increase of 80 per cent from the previous financial year. In addition, the bank also benefited from activities in the interbank market by lending to liquidity-deprived banks. In the results released on Wednesday, the bank’s net profit for the period under review dropped by four per cent to Sh16.5 billion following a rise in bad loans.

The decline in earnings from Sh17.3 billion in 2015 was as a result of the bank more than doubling its loan loss provision (173 per cent) to Sh6.6 billion from the previous year’s Sh2.4 billion.


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