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According to an investor note released in May, Equity Bank Group’s Congolese subsidiary EquityBCDC recorded a first quarter net banking revenue of KSh6.2bn ($53.6m), with an after-tax profit of KSh1.4bn ($12.1m). This is nearly four times the level of its net profit during the first quarter of 2021 (KSh0.4bn), which was hit hard by the Covid-19 pandemic, and more than the profit achieved in the whole of 2019.
At the time, the Nairobi-based giant and mobile financial services pioneer – led by its MD James Mwangi – only had the former ProCredit Bank Congo in Kinshasa, which Equity Group bought in 2015. However, in 2020, Equity acquired BCDC, the country’s second-largest bank, for $95m from the Belgian Forrest family.
An acquisition “at a loss”
This operation more than tripled (+250%) Equity’s asset base in the DRC, but with BCDC, the Kenyan group has taken over a company with a perfectible model and estimates that it has made a “bargain purchase gain” of KSh1.18bn in this transaction. EquityBCDC’s objective is to become the leading Congolese bank, thus displacing Rawji’s Rawbank.
The merger with BCDC, however, diluted its profitability and reduced Equity’s operational efficiency in the DRC. The net operating ratio (cost/income ratio) deteriorated by seven points to 79.2% at the end of 2020 (compared to 41.5% in Kenya), while the return on equity halved to 8.8% (18% in Nairobi) and the return on assets fell to less than one per cent.
Mwangi has been watching these indicators closely. EquityBank expects a return on assets of at least four per cent in the medium term for each of its subsidiaries and is particularly concerned about the time it takes for them to reach this threshold.
Though it took 16 years to achieve this in Kenya, “the subsidiaries achieve high returns over shorter periods”, says Equity in a note published at the beginning of May, that is 14 years after its installation in Uganda (2008) and 11 years in the case of Rwanda (2011).
Very positive initial results
Although the subsidiaries in Tanzania (integrated into the group in 2012) and the DRC have not managed to reach such a level of profitability, Equity Bank has strong ambitions in the latter country, its largest establishment outside Kenya. Since March 2021, Célestin Muntuabu, a veteran of ProCredit Bank Congo who remained at the head of the subsidiary after the merger with BCDC, has been assisted by Jean-Claude Tshipama, a former telecoms and distribution executive who has worked for Celtel, Canal+, Microsoft and Eutelsat, and been a member of the bank’s board of directors since 2016.
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The first results of the merger are being felt. EquityBCDC has made significant progress in meeting operational targets since last year. The cost/income ratio has dropped 17 points year-on-year to 65%, while return on equity has tripled to 19%. Return on assets reached 1.4% during the first quarter of 2022, up from 0.5% a year earlier. The gap with the flagship, Equity Bank Kenya, on most of these indicators is at its lowest level since 2020.
$100m of investments
Between 2015 and 2021, Mwangi’s group invested KSh17.4bn ($153m) in the DRC, almost as much as the KSh20.8bn in cumulative investments made in the bank’s four other foreign markets (Rwanda, Tanzania, Uganda and South Sudan). By 2021, the DRC’s network had almost doubled to 70 bank branches.
This effort is expected to continue. In April 2022, the CEO announced Equity’s intention to invest €100m ($105m) in its Congolese subsidiary “to strengthen the group’s capacity to finance development projects and large mining and manufacturing companies in [the] DRC.”
“In 30 years, we have become perhaps the most inclusive bank in the world. […] This is our ambition in [the] DRC with BCDC, which has been around for 111 years and has only 200,000 [high-income] clients in the mining sector; and ProCredit – and its one million clients – which we have directed towards individuals and very small businesses. The idea is to merge the two and say to the mining companies: ‘Send us your employees and contractors’,” Mwangi told us at the end of 2020.
EquityBCDC a pris part à Indaba Mining 2022
Célestin Mukeba, DG de EquityBCDC, a présenté le business modèle commercial & social de EquityBCDC. Il a rappelé le besoin de se joindre aux efforts des miniers pour la transformation des conditions de vie des africains et des congolais pic.twitter.com/pzSwvWl8o4
— EquityBCDC (@EquityBCDC) May 12, 2022
EquityBCDC took part in Indaba Mining 2022
Célestin Mukeba, CEO of EquityBCDC, presented EquityBCDC’s business and social model. He reiterated the need to support the mining industry’s efforts in transforming the living conditions of Africans and Congolese people
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