Equity Bank’s Church House project had threatened to turn sour, but was salvaged by a Church of Uganda campaign in which money was raised to repay the loan. Photo / Edgar R Batte
Equity has a huge asset base, built from an aggressive search for deposits.
But the assets came at a cost - expensive funding and a mountain of non-performing loans.
On the surface, Equity Bank is solid: It holds Shs3.4 trillion in assets, Shs2.8 trillion in customer deposits, and doesn’t borrow much. It is also very cautious with lending, giving out loans of less than half of its deposits.
But despite having such a rich asset base, Equity made only Shs20b in profits last year, which means it earns Shs5 in profit for every Shs100 invested (that is a 5 percent return) and only Shs1 for every Shs100 in assets (a 1 percent return).
A 10-year government bond with an annual return of over 15 percent would have paid more, and without the stress or risk.
The bank has Shs216b in bad loans - the highest among the top five banks – and this has a long history, which needs to be understood.
Equity came to Uganda in 2008, buying Uganda Microfinance for $27m (Shs98.2b). In 2015, it teamed up with the Anglican Church to build Church House. It wasn’t just about real estate - it was a clever move to win hearts and moral capital.
Then came 2017 and the Equi-Duuka model - agency banking before it was trendy. While other banks held boardroom meetings, Equity was in kiosks, churches, and village savings groups, winning market share from the ground up.
For a while, it was a masterstroke - playing chess while others played checkers. But the engine slowed, and the spark of agent banking is no longer a luxury. Other banks have since diluted its once-monopoly turf.
For every Shs100 the bank earns, it only keeps between Shs2 and Shs18 after expenses, because costs eat up 82 percent to 98 percent of what it brings in, depending on whether you count money set aside for bad loans.
Meanwhile, Stanbic, the largest bank by assets and net profits, keeps Shs50, Centenary Shs38, and Absa keeps Shs34.
A further zoom in on productivity reveals more. Each Stanbic employee makes the bank about Shs254m in profit a year, while Equity’s makes Shs13 million each. And with over 1,500 staff, that’s a lot of wheels turning without much output.
One other thing is that Equity holds substantial customer deposits, but it is not cheap.
Corporate governance and banking expert Mustapha Bernabas Mugisa, says Equity pays about 4 percent to accumulate deposits, more than any of its rivals.
On the other hand, the bank makes some handsome returns on fees and non-loan income. However, when compared to others, it is still down.
For instance, it’s Shs133b in fees and other non-loan income earned last year lags compared to Stanbic’s Shs335m, Centenary’s Shs231.6b, and Absa’s Shs230.2b.
These banks aren’t just making money - they are doing it smartly. They are digital, diversified, and aligned with what today’s customer wants.
By the end of 2024, Equity’s bad loans- also called non-performing loans - had declined by about Shs148b to Shs216b, from Shs364b, which is still high compared to industry standards.
Seventeen percent of the bank’s loans have gone sour, making Equity the worst performer among Uganda’s top-tier banks. Centenary sits at just 3 percent and Stanbic at 2 percent.
Yes, Equity’s lending has grown - from Shs1 trillion in 2019 to Shs1.6 trillion in 2024 - but bad loans grew faster from Shs15b in 2019.
In 2024, Equity wrote off Shs207b in bad loans, set aside Shs88b to cover more potential loan losses, and delayed recognition of Shs38b in interest income from shaky loans (interest suspense).
Compared the write-offs with Centenary’s Shs20b. The large write-offs suggest that either recovery efforts are failing or something deeper is broken.
In March 2024, Equity revealed it had lost Shs65b due to fraudulent stock loans and agency banking fraud.
Behind it, reports pointed to loose internal controls, no early warning systems, and a weak cybersecurity setup. Investigations are ongoing.
The bank turned around a Shs18b loss in 2023 into a Shs20b profit in 2024, but Mugisa says the bounce-back came from cleaning up the loan portfolio.
This is because the fundamentals remain unstable, with loan yields of just 21 percent, but net interest margin, what the bank actually keeps after funding costs, is just 7 percent.
Meanwhile, the bank pays 4 percent to hold customer deposits, and interest payments alone eat up 33 percent of income. That, combined with a 98 percent cost-to-income ratio, leaves very little room to breathe.
The bank finds itself in a catch-22. For instance, the loan to Phaneroo Ministries was secured by land that is under dispute in Naguru.
Parliament has previously threatened to cancel the titles, and the dispute could be an ever-present issue.
Sound familiar? Think back to the 2023 Dei BioPharma saga, and it’s now in court with Dei challenging Equity’s attempt to recover Shs39.2b.
This is a pattern - big loans backed by risky bets.
Paper-thin profitability
In 2020, Equity was booming: Profit grew 49 percent, foreign exchange income jumped 91 percent, loans rose 25 percent, and deposits grew 30 percent.
But in 2023, the bank posted a Shs18.8b loss, before recovering to a Shs20.1b profit in 2014 - a fragile comeback.
The bank’s profit conversion rate — how much of its income turns into actual profit - is the lowest among big banks at 6.5 percent, compared to Stanbic’s 38 percent, Centenary’s 32 percent, and Baroda’s 57 percent. Put simply, for every Shs100 earned, Stanbic keeps Shs38 and Equity keeps just Shs6.5. Equity made Shs308b in operating income but kept only 6.5 percent as profit.
Its loan-to-deposit ratio is a low 47 percent, meaning it’s holding onto deposits instead of lending most of it out.
Compare this to Baroda and Centenary, which lend out around 60 percent.
Between 2020 and 2023, Equity’s deposits grew by 83 percent, assets by 81 percent, loans by only 27 percent, and profits fell by 65 percent.
Operating costs shot up to Shs292b in 2024 - the second-highest in the industry.
With 1,501 employees, productivity is low compared to Baroda, with only 228 staff, but making Shs134b in profit.
That is six times Equity’s net income. The bank has expanded its network but not its financial strength. It has more assets but less profit.
In Kenya, Equity remains a game-changer, serving farmers, street vendors, and small shops. The risks it took there worked, but in Uganda, it shifted to safer, more political customers, salaried workers, and cautious bets.
The result? A strategy complicated for everyday customers, too shy for big business, and too costly for rural areas.
