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Equity Bank lays off 400 staff as profits go up

Equity Bank has sent home an additional 400 employees as its profit after tax for the nine months to September rose by 18 per cent.

The bank reported an after-tax profit of Sh15 billion for the period ended September, up from Sh12.8 billion in a similar month last year.

Management said the bank’s staff numbers had declined by 400 in the nine months owing to natural attrition.

FROZE STAFF RECRUITMENT

Last year the bank shed 660 jobs, citing voluntary exits, at a time it has frozen staff recruitment due to increased reliance on new technology-driven platforms such as Equitel and agency banking.

Its payroll rose by four per cent to Sh8.7 billion, which management attributed to an average 20 per cent pay rise to its staff.

“Last year natural attrition took about 600 staff but this year it is 400, and that is why despite the 20 per cent salary increment our staff costs are still flat,” said the bank’s chief executive James Mwangi.

The banking sector has in the past been a key job creator in the economy, with recent announcements of job cuts from the industry casting gloom in the labour market.

Two other lenders, Sidian and Family Bank have announced job cuts as the banking industry joined manufacturers in declaring reduction in staff numbers.

Interest income was the key driver of Equity bank’s profit growth, even as its Kenyan loan book shrunk for the second quarter in a row, underlining low credit appetite by the private sector.

The lender’s loan book in the country shrunk by Sh1.3 billion to Sh221 billion coming on the back of a Sh7 billion drop in June.

INTEREST RATES

“The debate on capping of interest rates started late last year and the public took a wait-and-see approach” said Mr Mwangi

The slowdown in private borrowing forced Equity to increase its stock of government securities, which rose to Sh62.7 billion from Sh34.9 billion a year ago and Sh63.7 billion in June.

The savings by the bank customers in Kenya increased to Sh271 billion from Sh259 billion three months earlier. The management attributed this to customers looking for safer banks following the collapse of three lenders in the last 15 months.

Slow credit expansion since the beginning of the year has been a major concern to policy makers as it indicates low economic production.

Capping of interest rates at a relatively lower 14 per cent, which took effect mid-September, was expected to spark credit appetite and revamp a lull economy.

Analysts, such as Standard Investment Bank and Standard Chartered, have reported banks are tightening the appraisal procedure, stifling credit expansion.

STUNTED LOAN BOOK

During the period under review, Equity’s interest income shot up 26 per cent to Sh39.8 billion, despite the stunted loan book signalling the high returns offered by the government.

Non-interest income, however, contracted by 1.2 per cent to Sh16.6 billion on lower income from loan fees and commissions, which dropped from Sh4 billion to Sh2.9 billion between September 2015 and September 2016.

Equity doubled its loan loss provision during the period, from Sh1.69 billion to Sh3.3 billion. The gross non-performing loans at the bank rose by 40 per cent Sh16.5 billion, which is equivalent to six per cent of the loan book.