Equity to inject Shs36b in Ugandan subsidiary
Equity Bank says that only 6 percent of its transactions are conducted inside banking halls. Photo / File
What you need to know:
- There was also an even split between the regional units and the Kenyan banking unit in terms of contribution to net profit, which stood at Shs1.3 trillion.
Equity Group could inject as much as $10m (Shs36.5b) this year in its Uganda subsidiary to build up its buffers. The $10m (Shs36.5b) is part of $30m that the Group is looking at adding to the capital of its Tanzanian and Ugandan subsidiaries.
Equity Group chief executive James Mwangi, says that whereas Equity Bank Uganda is a profitable unit, it has been growing faster, thereby outstripping its profits' ability to fund the growth.
“ … there is also a possibility that Uganda might require $10 million. Uganda is profitable, but they are growing faster than their profits can fund them,” Mr Mwangi said, noting that two regional subsidiaries - in Uganda and Tanzania - have seen their balance sheets expand at a faster pace than their profits can fund them.
On the other hand, Mr Mwangi noted that this year, “Tanzania will require an additional $20m (Shs73.1b),”
Banks normally need to add to their capital to expand their lending capacity while meeting adequacy ratios, pegged on assets and liabilities.
In Uganda, a financial institution cannot grant a single person an advance or credit accommodation which is more than 25 percent of its total capital.
Equity Bank Uganda has in the last five years, registered rapid growth, becoming one of the most important banks in Uganda’s financial ecosystem.
Across the region, Mr Mwangi said the Tanzania subsidiary has now moved into a growth phase after dealing with high non-performing loans. Equity has previously injected $10m (Shs36.5b) into the Tanzania unit two years ago, at a time when it also capitalised the DR Congo unit to the tune of $70m (Shs255.9b).
However, Mr Mwangi noted that Equity will not need capitalisation in DR Congo, just last year, but they were ready if it requires money.
“When we acquired the DR Congo subsidiary in 2015, it had a balance sheet of $150m (Shs548.38), but it is now at $5.1b (Shs18.6 trillion) …profit alone wouldn’t be able to cope with that in terms of capital needs.” The bank’s decision to turn inwards to fund the capital needs of regional subsidiaries has been informed by tough market conditions that undervalue the lender, making it imprudent to seek external capital at present valuations.
Mr Mwangi noted the capital injections had required the bank to adopt a more conservative dividend policy, which would see it pay out Shs452.3b for the year ended December 2024, equivalent to 33 percent of its net earnings. “It is simply to cushion ourselves so that we are able to fund the growth without diluting existing shareholders,” he said.
Equity’s regional subsidiaries accounted for 48 percent of the bank’s total deposits and loans, which stood at Shs39.5 trillion and Sh23.15 trillion, respectively.
There was also an even split between the regional units and the Kenyan banking unit in terms of contribution to net profit, which stood at Shs1.3 trillion.
In addition to DRC, Uganda, and Tanzania, Equity also operates subsidiaries in Rwanda and South Sudan.
