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Kenya's Equity Bank says bullish about 2011
By Duncan Miriri
NAIROBI (Reuters) - Kenya's
Equity Bank is upbeat about earnings prospects this year thanks to an
expected fall in its cost-income ratio and higher non-interest income
from economic growth, its chief executive said.
James Mwangi said the bank's subsidiaries in neighbouring Uganda and
South Sudan were likely to do well as Uganda turns profitable and South
Sudan benefits from a peaceful referendum on separation from the north.
Equity Bank is the largest Kenyan bank by market capitalisation, and
its shares are frequently among the most heavily traded at the Nairobi
"The continued peace in South Sudan, even after the referendum, tells
us that it is not likely to be a major challenge, so we are very
bullish," Mwangi told Reuters in an interview on Tuesday.
In Uganda, where Equity completed an acquisition in 2009, Mwangi said
he expected the bank would stop bleeding cash and turn profitable in
In Kenya, he said the bank's transactional model could benefit from
projected economic growth in east Africa's biggest economy of 5.7
"That again increases the volume and explains the rapid growth last year. We have not seen anything that has changed," he said.
Equity's pretax profit surged 71 percent to 9.04 billion shillings in
2010, and Mwangi said it was hard to assess the likely impact on the
2011 outlook from rising inflation at home and the crises in Japan.
Equity plans to deploy its surplus capital -- more than double the
statutory minimum -- to open operations in Rwanda and Tanzania during
the second quarter of this year, Mwangi said.
"We want to further test the model we used in South Sudan of green
fields, because it seems to have delivered better results than the
acquisition in Uganda," he said.
He said the South Sudan operation turned profitable faster than the
acquisition in Uganda, adding that five outlets would be opened in
Rwanda and three in Tanzania.
Equity expects its costs as a percentage of income to fall to 54
percent this year from 58 in 2010, as it benefits from past investments.
"We are seeing 2011 being a fairly good year. We have started reaping
the benefits of our past investments. The cost income ratio is dropping
as we fully utilise our new data centre," Mwangi said.
"The branches that we have opened in the last three years are now maturing and starting to make significant profit."
Founded in central Kenya as a building society in the 1980s, Equity
has grown into the largest bank by number of accounts in Kenya, with
just over 6 million.
It has teamed up with telecom operators such as Safaricom to offer
mobile phone based accounts. Mwangi said users of the services had grown
to 1 million since the first was launched last year.
"The roll-out of the agency (banking) model makes (mobile phone
banking) even more usable. It is very critical, because going forward
business will be through partnerships," he said.
In 2010, Equity's share of income from commissions and transactions
rose from 40 percent to 47 percent of total income, and Mwangi said that
could grow to 50 percent this year.
"Transactions can really grow, and there is a possibility that in two
to three years' time, commission and transaction income will be higher
than interest income," he said.