Equity Bank Kenya, a key participant in the nation’s financial landscape, announced a 20% decrease in earnings for the initial nine months of this year. We attribute this decline to growing non-performing loans, shedding light on challenges facing businesses and households in our current economic climate.

The bank’s profit after tax slipped to Sh19.3 billion, impacting the overall growth of the Equity Bank Group, which managed only a modest five percent increase to Sh36.2 billion during the same period. Since 2016, when governmental imposition invoked a cap on interest rates, this marks the first instance where the Kenyan unit has encountered plummeting profits.

Equity Bank Group’s CEO, James Mwangi, underscored the institution’s emphasis on prioritizing customers over profits during this challenging period. “We opted to prioritize the customer over profit,” Mwangi informed investors, emphasizing it as a clear indicator of their devotion towards supporting borrowers facing difficulties.

Equity Bank Kenya weathered a challenging period, yet its subsidiaries in neighboring states achieved remarkable growth: their earnings surged by over 100%. Notably, Equity BCDC – the Democratic Republic of Congo (DRC) subsidiary, saw an extraordinary spike in net profit; specifically, a robust 142% increase. Similarly impressive was recorded by the Tanzania subsidiary with significant growth: it reported an exponential rise of 136% in net earnings.

Reflecting the broader economic struggles in Kenya, the bank’s performance exemplifies this pervasive condition. The rising cost of living intensively affects businesses and households, thereby driving up borrowing costs as governmental adjustments to base lending rates ensue.

In October, inflation – a determinant of the cost of living, experienced its first ascent in five months to reach 6.9%. Simultaneously, the Kenyan shilling persisted in its depreciation; this exacerbated our existing economic difficulties.

Equity Bank, primarily lending to businesses, anticipated an average loan default rate of 10 to 12 percent; however, due to the financial stress faced by borrowers–they had to revise this projection upward: potentially reaching as high as a 13% surge. This underscores that in August alone, non-performing loans peaked at a daunting 15%, a figure not seen in sixteen years–and totaled more than Sh596 billion.

The bank allocated Sh17.7 billion to cover the risk and mitigate the impact of loan defaults, resulting in a 107% surge in provisions for potential losses from loans. This consequently drove up overall operating costs by 47%, culminating at Sh45.9 billion.

Equity Bank Group overcame these challenges and demonstrated its resilience amid economic uncertainties, as reflected by a remarkable 24% growth in total assets to Sh1.69 trillion. The institution also saw an increase of 26% in net loans, a rise of 21% in investments within government papers, and 24% growth of cash at hand.

While investors confront a decline in earnings, they may derive comfort from the bank’s optimistic forecast: an expected minimum growth of four percent in their own returns. The projection for each single share is an earning potential, rising to Sh9.20 from its previous year’s value of Sh8.80; this underscores not only current recovery capabilities but also hints at what future quarters could hold for the bank.