For several weeks now, the clatter of Russian guns in Ukraine has brought up a very bad memory for Europe. That of war. European countries were ... prepared for it. Since 2014, when Crimea was annexed by Russia, Europe has once again become one of the hotspots of the global arms trade. In Africa, the acquisition of military equipment has clearly diminished – by 13% from 2015 to 2020. However, faced with numerous security threats – terrorism, transnational crime, piracy – the continent remains particularly affected.
One-off costs for the business have so far prevented such a contribution, Mwangi said following the release of Equity Group’s first-quarter results. In 2022, Mwangi expects that Equity BCDC will start making a profit contribution proportionate to the 27% share of Equity Group’s balance sheet for which it accounts, as synergies and economies of scale come into effect.
“That growth won’t need additional investment,” Mwangi says. BCDC will be “leveraging the group’s existing infrastructure and digital assets.”
Equity Group has operated in the DRC since its purchase of Equity Bank Congo in 2015. The bank bought Banque Commerciale du Congo (BCDC) in August 2020. Equity BCDC, created by merging EBC with BCDC at the end of last year, is the second-largest subsidiary of Equity Group.
Political change has shaped Mwangi’s growing confidence in the DRC. He attributes this to President Félix Tshisekedi’s “commitment to reforms” and the fact that he is no longer in coalition with former president Joseph Kabila. Equity Group already has a 28% market share in the DRC and will keep investing in the country as part of an organic growth strategy, Mwangi says.
- He’s also encouraged by US granting preferential free-trade status to the DRC. “That gives us confidence. It’s not an internal arrangement that is being made. The country has to keep on track with reforms.”
- The DRC regained beneficiary status under the African Growth and Opportunity Act as of 1 January.
- The status had been suspended due to human rights violations under Kabila.
Slowing Loan Growth
Equity Group cut its forecast for 2021 loan growth in its first-quarter statement. Loans are now predicted to increase by 20% to 25% this year, versus a previous forecast of 25% to 30%.
- The lower prediction is the result of repeated lockdowns in Nairobi in April and May, Mwangi says, noting that the capital city accounts for 60% of Kenya’s GDP.
The bank also revised upwards its predicted return on equity for 2021 to between 25% and 30% from the previous forecast of 22% to 27%, and its return on assets to between 3.6% and 4.3%, versus 3.0%-4.0%. The cost of risk forecast was reduced to a range of 1.5% to 2.5% from 2.0%-3.0%
- These forecasts were because of the “prudent” provisions that were made in 2020, Mwangi says. “Provisioning made last year means that we don’t need additional risk coverage.”
- “There is unlikely to be any adverse quality deterioration” in the bank’s loan book.
- According to Cytonn Investments in Nairobi, Equity Group restructured the largest absolute amount of loans among Kenyan banks in 2020 at KSh.171bn ($1.59bn).
- That represented 35.8% of the bank’s total loans, with only Diamond Trust among major Kenyan banks having a higher ratio at 45%.
The fact that Kenya has been able to keep its schools open, Mwangi says, together with the end of lockdowns and a falling Covid-19 infection rate means that economic growth of 6% for the year is still realistic, though the sectoral distribution of the growth will be different to normal.
Mwangi is betting that there will be no return to the politics of the past in the DRC.
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