Kenya's Base Equity Bank Could Buy Parts of Barclays Business in Africa

Equity Bank (EQTY.NR), Kenya's biggest bank by deposits, may be interested in buying parts of Barclays' (BARC.L) Africa business, its CEO said on Tuesday.

James Mwangi told Reuters he saw potential acquisition opportunities following Barclays' decision to reduce its stake its Barclays Africa Group (BGAJ.J), which has businesses across the continent.

"If there is anybody who is well-positioned in the region to take up the spoils, it is Equity Bank," he said about the Barclays decision, citing Equity's focus on small- and medium-size enterprises as a major competitive advantage.

Mwangi also said the bank expected higher returns on assets and equity this year, mainly driven by profit from regional markets.

Alongside Kenya, Equity has operations in Uganda, Tanzania, South Sudan, Rwanda and Democratic Republic of Congo. Mwangi said he saw opportunities to expand in Uganda and was interested in prospects for a new business in Ghana, in West Africa.

In the past five years, as Equity expanded in the region, the bank maintained a return on asset rate of 4.5 percent and a return on equity rate of about 25 percent, Mwangi said.

"Now that subsidiaries have broken even and have started enjoying significant growth, we see ourselves returning to a return on asset of 5 percent and a return on equity of 30 percent by the end of this year," he said.

Weaker currencies in Uganda, Tanzania and Kenya last year drove up prices and led to foreign exchange losses. But Mwangi said a steadier environment this year would boost earnings.

"We are almost headed to a stable macroeconomic environment where inflation has started coming down, where exchange rates have stabilized," he said.

Kenya's year-on-year inflation rate slowed to 6.84 percent in February, its lowest since October last year.

A conflict in South Sudan, which led to a steep devaluation of the Sudanese pound in 2015, as well as surging interest rates in Kenya last year had also driven up bad debts. But the chief executive said the situation would improve in 2016.

"Non-performing loans will be much lower than where they were last year. We expect to come to our traditional cost of risk of 0.6 percent. It had shot up to 1 percent simply because we needed to provide for the non-performing loans," Mwangi said.

South Sudan, which still only accounted for 0.3 percent of Equity's total lending, was probably over the worst. "We don't expect the crisis in South Sudan to be worse than it has been. It has hit rock bottom," he said.

The expansion of Equity's mobile phone banking operation, Equitel, which now boasts 1.7 million users since launching in 2015, had allowed Equity to reduce staff costs by 4 percent last year and it expected further reduction by 5 percent this year.

Clients can use mobiles for services such as making payments or submitting a loan application.

"Cost to income ratio went down by 1 percentage point last year and we expect significant improvement this year," Mwangi said.

Reuters
15-March-2016