Equity Bank is staring at Sh50 billion cashflow deficit in loan principal and interest receipts in the next three years.
As stated by the Bank, customers are seeking extensions in repayment due to the economic hardship brought by Covid-19 pandemic.
The Equity Bank chief executive James Mwangi says the current job losses and declining revenues are likely to hurt borrowers’ ability to service loans for about three years, leading to the cash flow disruption to the bank.
“We computed the repayment that we might miss over a period of three years for the rescheduled loans, and it came to Sh50 billion,” said Mwangi.
The expected delays have led to the lender freeze dividend payment for the first time since listing on the Nairobi bourse and ramp up debts to make up for the Sh50 billion delayed revenue.
“We think within the three years, there are some businesses that may close and never reopen and the securities we hold may not find buyers,” he added.
The lender has earned Sh36 billion as interest income on loans and advances to customers or an average of Sh4 billion per month this is because they relied on the model to claw back on last year’s Sh9.4 billion dividends and also decided to borrow Sh50 billion.
Equity’s model had shown that up to 45 per cent or Sh204.24 billion of its loan book was at risk of suffering from the Covid-19 economic hardships since Kenya reported the first case mid-March.
According to Mwangi customers have so far applied for restructuring on about 35 per cent of the loan book.
The restructured loans amount to about 158.9 billion, going by the Sh453.88 billion of its loan book at the close of September.
He confirmed that among the 35 per cent that took the restructuring, 10 per cent have continued to pay their loans meaning they took the restructuring only as a precaution.
Equity borrowed Sh54.6 billion ($500 million) to cover for the expected liquidity shortfall from multiple lenders including International Finance Corporation, European Investment Bank, KFW Deg, Proparco and African Development Bank.
The funds saw the lender’s value of borrowed funds jump by 21 per cent or Sh11.9 billion to Sh68.5 billion at the end of September from last December when it stood at Sh56.6 billion.
Within the nine months which ended on September, Equity recorded a 14.5 per cent decline in net earnings on the back of increased provisions for coronavirus-related defaults.
Equity’s provisions for bad debt jumped 7.8 times to Sh14.7 billion in appreciation of the challenges that businesses and households are dealing with due to Covid-19 hardships.
The lender made a net profit of Sh14.8 billion in the review period, down from Sh17.3 billion a year earlier.
By Joy Kyalo