State securities' profits soar to KES 34.6 billion over six months, leading to a cooling period for equity.
In a strategic move to adapt to the changing economic climate, Equity Group Holdings, a leading banking group with operations in Kenya, Tanzania, Rwanda, Uganda, South Sudan, and the Democratic Republic of Congo, has announced plans to reduce its exposure to government securities by over 80%.
According to Group Chief Executive, James Mwangi, the lender aims to optimize profitability by reducing government securities from Sh540 billion to about Sh75 billion. This strategic decision is part of a broader framework that involves actively managing the balance sheet with measures such as asset sales and capital adjustments to minimize costs and optimize structure under macroeconomic shocks.
Mwangi further stated that lending towards small and medium enterprises (SMEs) would offer a return of 16%, indicating a shift in focus towards more profitable and less risky assets. This move aligns with industry trends where banks adjust their portfolios to optimize risk-return trade-offs in response to stress or economic changes.
The reduction in government securities is expected to be offset by an increase in net loans. During the half-year review period, Equity Group Holdings held Sh540.9 billion in government securities. However, net loans closed the six-month period at Sh825.1 billion, a growth from Sh791.1 billion. This marks a 4% growth in net loans, the first increase in four years.
The bank's decision to reduce government securities and engage more with the private sector is timely, given the recent policy by the Federal Reserve to cap reinvestments in Treasury securities and replace maturing ones at a controlled pace. This policy change is likely to push banks, including Equity Group Holdings, to reallocate capital towards productive loans, stable corporate credits, or alternative assets that better match current yield and risk environments.
Equity Bank Kenya Managing Director, Moses Nyabanda, expressed confidence in the bank's ability to handle risks associated with lending to the private sector. He also emphasized the need for the government to tackle issues such as pending bills to unlock liquidity in the market.
The bank's focus on the private sector is reflected in its balance sheet composition. The bank, which holds 50% of the Group's balance sheet, is looking to engage more with the private sector. Nyabanda also noted that banking is intermediation, not being a lazy bank giving money to the government.
The shift in strategy has had a positive impact on Equity Group Holdings' financial performance. Net interest income grew from Sh54.4 billion to Sh59.3 billion during the same period. However, non-financial income dropped from Sh42.8 billion to Sh40.9 billion compared to the same period last year. Despite this decrease, the Group's profit after tax increased 17% during the period to Sh34.6 billion.
As the macro-economic environment turns, Equity Group Holdings remains bullish about its ability to handle risks and continue to grow its business. With a focus on the private sector and a strategic approach to balance sheet management, the bank is well-positioned to navigate the evolving economic landscape.
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