Equity Bank invested an additional Sh3.4 billion in its Ugandan and Tanzanian subsidiaries in the year ended December to boost the units’ capital.
The lender’s stakes in the subsidiaries remained unchanged at 100 percent. The capital support from the parent company came amid economic disruption brought by the Covid-19 pandemic that has seen lenders restructure a substantial part of their loan books.
“On March 17, 2020, additional capital of 226,000 new shares with a par value of TSh100,000 was issued and paid by Equity Group Holdings Plc (EGH) to Equity Bank Tanzania Limited for a consideration of $22.5 million (Sh2.36 billion),” Equity says in its latest annual report.
“On March 17, 2020, additional capital of 345,000 new shares with a par value of Ush100,000 was issued and paid by EGH to Equity Bank Uganda Limited for a consideration of $10 million (Sh1.05 billion).”
The moves raised the Nairobi Securities Exchange-listed firm’s cumulative investment in the Tanzania unit to Sh6.2 billion while the capital in the Ugandan subsidiary jumped to Sh6 billion.
The Tanzanian subsidiary reported a pre-tax loss of Sh426 million in the year ended December, widening it from Sh411 million a year earlier.
Most lenders in Tanzania offered financial relief to their customers, particularly small and medium-sized firms, in the wake of the economic difficulty brought by the pandemic.
The measures included payment holidays lasting three to six months besides restructuring of loans to extend repayment periods.
The Ugandan unit on the other hand raised its pre-tax profit 54.6 percent to Sh2.3 billion from Sh1.4 billion. Lenders in Uganda also offered credit relief to clients such as repayment holidays of up to 12 months.
Equity restructured a total of Sh171 billion worth of loans across its regional operations as a result of the pandemic.
The capital support to the subsidiaries were part of Equity’s total investment of Sh14.8 billion in the regional market last year including acquisitions in the Democratic Republic of the Congo (DRC).
“The group’s strategy of regional expansion and business diversification resulted in a double-digit growth across the subsidiaries with an increased profit before tax contribution of 28 percent from 18 percent, validating the group’s decision to expand into the East and Central Africa region,” Equity says in the report.
The heavy investment is part of the reason why the bank has suspended dividend payouts for two years.
Equity first skipped dividends for the year ended December 2019 when it cancelled a proposed payout of Sh2.5 per share. The bank maintained the freeze in the subsequent year, saving a cumulative Sh18.8 billion.
Equity made a net profit of Sh20.1 billion last year, a 10.9 percent decline from Sh22.5 billion in 2019 as increased provision for coronavirus-related defaults took a toll.
The lender says it has opted to reinvest its earnings to grow the business, noting that an aggressive loan book expansion requires increased capital commitment.
Besides retaining all the profits, the bank has also taken billions of shillings of long-term loans to further bolster its supplementary capital.
