25
Investor Briefing Q1 2013 Results May 2013
Investor Briefing
Q1 2013 Results
May 2013
2
2
Update on Strategic Initiatives
3
Key Initiatives More Than 6,000 Agents Across The Region
New Source of Low Cost Deposits… …And Key Driver of Growth
Agency model started in 2011 allows the Bank to
leverage on third party infrastructure for cash
transactions
Extremely successful initiative in Kenya – number of
agents increased from 875 at the beginning of the year
2011 to 6,892 agents by March 2013
Scalable business model for regional expansion rolled
out in Rwanda and Tanzania
Variable cost model: no capex required, no rent, no staff
cost, only commission to agents
Q1 impacted by softness in the economy due to
elections
Agency Banking Model Proving Key Driver of Growth
0.9 1
.3 1.6 1
.9 2.2 2.3 2.5 2.7 2.8 3.0 3.1 3.2 3.3 3.5 4
.0 4.2 4.4
5.0 5.2 5.3 5.5 6
.0 6.2 6.3 6.4 6.5 6
.9
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
Fe
b-1
2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Fe
b-1
3
Ma
r-1
3
Number of Agents (‘000)
2,331
2,535
2,328
2,4682,246
2,366
2,125 2,200 2,125
2,038
2,7453,017
2,795 2,829
3,199
3,0312,647 2,715
3,133
2,829
2100
443
748
1,047
1,3971,548
1,8802,178
2,215
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Jan-11 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
Un
its
in t
ho
us
an
ds
Branch Transactions ATM Transactions Agency Transactions
1 108886 1,562
2,604 2,955 3,313
4,0025,013
4,653
9572 1,942
3,3724,456
5,5616,036
7,713
9,458 9,443
10680
2,828
4,934
7,060
8,5169,349
11,715
14,471 14,096
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jan-11 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
Tra
ns
ac
tio
n T
urn
ov
er
(KE
S m
)
Withdrawal Amount Deposit Amount Total
4
Increasing Focus on SMEs Loan Book
Low Risk Strategy
Increasing Strategic Focus on SMEs to
Nurture Client Evolution
2009 March 2013
NPL Ratio
We Are Following Our Customers Evolution
Consumer and Agriculture
Micro
Enterprises
SMEs
Large
Enterprises
Key Strategic Initiatives
Acquisition strategy = retention strategy through
graduation process
Investment in 7 Supreme Branches to better serve our SMEs
Revamped product offering
Significant investment in recruitment and training of
relationship managers and officers
Advisory services and mentorship for SMEs
SMEs and Large Enterprises Other
Contribution to loan book
5
South Sudan
(9 branches)
Kenya
(151
branches)
Tanzania
(6 branches)
Uganda
(38 branches)
Rwanda
(9 branches)
Regional Expansion
Commenced regional expansion with acquisition in Uganda in
2008
Now present in 5 countries: Kenya, Uganda, Tanzania, South
Sudan and Rwanda
Already rolling out agency branchless banking where Central
Bank has Agency Banking Guidelines (Kenya, Rwanda)
— Tanzania agency roll out expected within a year
Leveraging shared ICT platforms to support new subsidiaries
and ensure group level compliance and standardisation
1. Average GDP growth 2013 - 2 017. Source: IMF projections
2007 Assets 2012 AssetsEquity Bank Presence in East AfricaRegional Expansion Opportunity
Real GDP Growth − Next 4 Years¹
2007 Revenues Q1 2013 Revenues
Total: KES 5.8bn
Kenya100%
6.1%
17.2%
7.1% 7.0% 6.7%
Kenya South Sudan Rwanda Tanzania Uganda
Total: KES 36.8bn
Kenya87.5%
Uganda3.9%
South Sudan6.5%
Rwanda1.1%
Tanzania1.0%
6
Key Opportunities
Bancassurance: A New Strategic Initiative
Bancassurance Division – Key Highlights PBT Evolution
Operations started at the beginning of 2008 with a pilot
process in 4 branches
Equity Bank currently distributes insurance products through a
network of over 150 branches with a staff compliment of 183
(22 based at head office and 161 at the branches)
Number 2 insurance intermediary in terms of premium,
volumes and profitability
Low level of insurance penetration
Leverage strong and trusted brand
Leverage the bank’s distribution network
Ongoing demerger of Life and Non-Life insurance companies
Finance Act 2012
Vision 2030
1
2
4
5
3
6
7
Diaspora Remittances Initiative
Equity Bank Monthly Diaspora Remittances (US$ Millions)
Equity Bank leads the remittance market and
commands a 13% market share in the banking
industry.
In the first quarter of 2013, approximately
US$ 40 million from the diaspora was channeled via
Equity Bank into the country
Source: Central Bank of Kenya
Share of January remittances (Kshs 8.9 billion)
11.56
13.7812.88
10.97 11.0511.78
12.46
10.42
7.74
9.15
10.73
13.37 13.54
11.91
13.71
Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13
US
$ M
illi
on
s
8
Payment Processing & Merchant Business
-
200
400
600
800
1,000
1,200
1,400
Jan-1
0
Mar-
10
May-1
0
Jul-10
Sep-1
0
Nov-1
0
Jan-1
1
Mar-
11
May-1
1
Jul-11
Sep-1
1
Nov-1
1
Jan-1
2
Mar-
12
May-1
2
Jul-12
Sep-1
2
Nov-1
2
Jan-1
3
Mar-
13
Ksh
s M
illi
on
s
Monthly Turnover
0
5
10
15
20
25
30
35
Jan-1
0
Mar-
10
May-1
0
Jul-10
Sep-1
0
Nov-1
0
Jan-1
1
Mar-
11
May-1
1
Jul-11
Sep-1
1
Nov-1
1
Jan-1
2
Mar-
12
May-1
2
Jul-12
Sep-1
2
Nov-1
2
Jan-1
3
Mar-
13
Ksh
s M
illi
on
s
Monthly Commission
9
Facilitating a Cashless Society
Beba Pay
PayPass-MPOS Technology
Tap and Go-Application of Near Field Technology
Cash Points
10
10
Update on Macroeconomic Environment
11
Key Macroeconomic Updates
Peaceful Kenyan elections impacting trade in Q1 2013
Ripple effects from delays in government payments to SMEs in Dec 2012
Payments expected to take place in the remainder of the year
Stability in FX rate
Appreciation of KES vs. USD from 87.6 in Dec-2012 to 85.6 at 31-Mar-2013
Stable inflation rates across all countries the bank operates in
Kenya, Uganda and Rwanda inflation stable within 3.5% − 5.5% boundaries
Tanzania inflation higher at 9.8% but experiencing a decreasing trend
Growth in the private sector credit
Increased by 12% in the twelve months to January 2013 compared to 10.4% in
December 2012 and a low of 7.1% in October 2012
Evidence of an expanding economy
1
2
3
4
5
12
80.00
81.00
82.00
83.00
84.00
85.00
86.00
87.00
88.00
89.00
90.00
2-Jan-13 23-Jan-13 13-Feb-13 6-Mar-13 27-Mar-13
Rate
KES/USD Q1 2013
Stable Interest Rates, However Increased Liquidity
Resulted in a Declining Interbank Rate in Kenya
Evolution of Key Macroeconomic Indicators
Source: IMF, Kenya Central Bank
KES Displayed Less Volatility in Q1 2013
Declining Inflation Rates in the Region... ...Combined With Solid 2013 GDP Growth Forecasts For
the East African Region
0
2
4
6
8
10
12
Jan-13 Feb-13 Mar-13
Rate
(%
)
Inflation Rates 1Q 2013
Uganda Kenya Tanzania Rwanda
0
5,000
10,000
15,000
20,000
5
7
9
11
13
15
04-Jan-13 22-Jan-13 09-Feb-13 27-Feb-13 17-Mar-13 04-Apr-13
Rate
(%
)
Rates Q1 2013
Interbank Volume 91 Days 182 Days
364 Days Interbank
5.9%
32.1%
7.6% 7.0% 4.8% 4.5%
Median: 6.4 %
Kenya South Sudan Rwanda Tanzania Uganda Burundi
2013 R
eal
GD
P G
row
th (
%)
13
13
Q1 2013 Results and Key Financials
14
Structure of Funding Portfolio
Mar 2012 Mar 2013 Growth
Liabilities & Capital (Bn) KES KES %
Deposits 153.68 175.32 14%
Borrowed Funds 14.90 24.78 66%
Other Liabilities 7.49 11.30 51%
Shareholders’ Funds 32.90 40.83 24%
Total Liabilities & Capital 208.97 252.23 21%
15
153.7 155.7
164.6 167.9
175.3
78.8 %
79.9 %
79.8 %80.8 % 79.6 %
60%
65%
70%
75%
80%
85%
90%
140
145
150
155
160
165
170
175
180
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Deposits Loan to Deposits Ratio
34%
57%
3%
5%1%
58%37%
5%
Sources of Funding
1 Split based on Kenya only
Q1 2013 Deposits Breakdown
Key Commentary
KESbn
Deposits Evolution
Savings Current Term
Total: KES175.3bnTotal: KES175.3bn
By Type By Maturity¹
Less than 3 months 3-6 months
6-12 months 1-5 years
More than 5 years
Strong growth in deposits achieved in Q1 2013
despite tough trading conditions
Focus on low cost savings and terminating
expensive deposits
Stable loan to deposits ratio
Significant liquidity
Q1 2013 Funding Breakdown by Maturity
Total: KES 252.23bn
16
Asset Portfolio
Mar 2012 Mar 2013 Growth
Assets (Bn) KES KES %
Net Loans 121.13 139.56 15%
Cash & Cash Equivalents 38.36 48.06 25%
Government Securities 29.64 40.32 36%
Other Assets 19.84 24.29 22%
Total Assets 208.97 252.23 21%
17
Consumer and Agriculture Micro Enterprises
SME Large Enterprises
34%
9%
46%
11% 11%3%
12%
51%
23%
121.1
124.5
131.3
135.7
139.6
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Asset Creation
1 Split based on Kenya only
Q1 2013 Loan Book Breakdown
Key Commentary
KESbn
Customer Loans Evolution
By Customer Type By Maturity¹
Less than 3 months 3-6 months
6-12 months 1-5 years
More than 5 years
Continued growth in the loan book, despite tough
trading conditions
Growth in the quarter driven by SME loans
Strategy focussed on following graduation process of
clients
Total: KE139.6bnTotal: KE139.6bn
Q1 2013 Asset Breakdown By Maturity
Total: KES 252.23bn
18
17.7% 18.0% 18.3%19.9% 15.0%
23.5%
27.3% 27.2%30.1%
22.7%
8.0%
10.5%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
CT1 Ratio CAR Minimum CT1 Ratio Required
Capital Position
Capital Ratio Evolution RWA Evolution
Q4 2012 – Q1 2013 RWA Evolution Breakdown
Reduction in CT1 and CAR driven by introduction of
new regulatory prudential guidelines for RWA
calculation including:
— Foreign exchange risk
— Operational risk
Minimum regulatory capital ratios revised upward:
— Core capital to total deposits ratio: from 8% to
10.5%
— Core capital to total RWA: from 8% to 10.5%
— Total capital to total RWA: from 12% to 14.5%
Equity Bank took decision in 2012 to hold significant
buffer over minimum requirements in anticipation of
new prudential guidelines
Excess capital of KES 9.1bn over minimum
requirements to fund growth
RWA 137.0 141.3 147.8 148.7 203.4
KESbn
New prudential
guidelines
Old prudential
guidelines
153.85.1 1.2
48.5
148.7
203.4
Q4 2012 Additional Q1 2013 RWA using old prudential guidelines
Q1 2013 Old Fx Risk Operation Risk
Q1 2013 New
19
Solid 1Q 2013 Performance: Income Statement
KESm Q1 2012 Q1 2013 Q1 2013 vs. Q1 2012
Interest Income 7,322 7,987 9.1%
Interest Expense (1,626) (1,115) (31.4)%
Net Interest Income 5,696 6,872 20.6%
Other Income 3,318 3,336 0.5%
Total Income 9,014 10,208 13.2%
Provisions (729) (682) (6.4)%
Operating Costs (4,584) (5,057) 10.3%
Exceptional Items 33 47 42.4%
PBT 3,735 4,516 20.9%
Tax (1,098) (1,302) 18.6%
PAT 2,637 3,214 21.9%
Key Ratios
NIM 13.4% 13.5%
C/I Ratio 50.9% 49.5%
Cost of Risk 2.48% 1.98%
RoAE 31.4% 30.7%
RoAA 5.2% 5.2%
20
63% 65% 65%66% 67%
37% 35%35%
34% 33%
9.08.5
9.1
10.2 10.2
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Net Interest Income Non Interest Income
Revenues
Total Income Evolution Key Commentary
Net Interest Margin Evolution
KESbn
Strong revenue performance despite softness in
trading conditions due to uncertainties around
elections
Stable net interest margin
— Decrease in yield on interest earning assets driven
by re-pricing of new loans
— Decrease in cost of funds as a result of deliberate
strategy to retire from expensive deposits
Reduction in contribution of non-interest income to
total income driven by lower FX trading revenue
— New prudential guidelines
— Lower FX volatility
4.0% 4.2% 4.2%3.0%
3.9%
2.3%
13.5%12.4% 12.9%
13.7%13.0% 13.5%
17.4%16.4% 17.0% 16.7% 16.9%
15.7%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 2012 FYE Q1 2013
0%
5%
10%
15%
20%
Cost of Interest Bearing Liabilities Net Interest Margin
Yield on Interest Earning Assets
21
729
515
323
42
682
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
2.48% 1.68% 1.01% 0.13% 1.98%
Loan Loss Ratio¹ (%)
Impairments
¹ Calculated as loan loss provision / average customer loans
² For Kenya only
³ Other includes CBK downgraded accounts and government delay in payments4 Under CBK rules
Loan Loss Provision Evolution
Coverage Ratio Evolution4
NPL Ratio Evolution2
New prudential guidelines requiring longer
observation period
SMEs impacted by late payments from government
in Dec 2012
Loan book still over-provisioned. Equity Bank
undertook strategic decision in 2012 to increase
provisions above prudential guidelines given
macro uncertainties
KESm2012: 1.29%
66%
47%
77.8%
56.2%
Q4 2012 Q1 2013
Minimum Capital Requirement
22
39.1%
8.2%10.7%
1.6%
40.5%
Costs
Cost to Income Ratio Key Commentary
Operating Costs Breakdown
Total: KES 5.1bn
Staff Costs Rental Charges
Depreciation on Property and Equipment Amortisation Charges
Other Operating Expenses
Operating costs under control (Q1 2013 C/I ratio
1.5% lower than Q1 2012) driven by increased
leverage on agency model
Agency model is shifting cost structure from fixed to
variable
Continued focus on cost management
50.9%48.8%
51.0%
45.0%48.8% 49.5%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 2012 FYE Q1 2013
23
2.6 2.8 2.9
3.8
3.2
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Profitability
PAT Evolution Key Commentary
RoAE Evolution
KESbn
31.4% 30.8% 30.1%
36.8%
31.3% 30.7%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 2012 FYE Q1 2013
5.2% 5.2% 5.2% 6.4% 5.5% 5.2%
Q1 2013 profitability metrics in line with 2012 full
year figures
Solid performance in Q1 2013 achieving 22% growth
in PAT vs. Q1 2012
Continued focus on profitability with a Return on
Equity of 31% despite strong capital base
Return on Assets consistently higher than 5% in the
past 5 quarters
RoAA
24
Key Highlights Key Figures
Solid performance in Q1 2013 achieving 22% growth
in PAT vs. Q1 2012 and RoE of 31%
21% growth in PBT achieved in Q1 2013 vs. Q1
2012
Continued focus on profitability with RoE of 31%
despite strong capital base
Agency model proving successful and acting as a
key driver of growth
Regional expansion accelerating
– Tanzania now open
Increased strategic focus on SMEs
Continued focus on innovation and technology to
drive down cost base
Q1 2013 Results - Summary
Mar 2012 Mar 2013 % Change
Income (KES bn) 9.01 10.21 +13%
PBT (KES bn) 3.73 4.52 +21%
PAT (KES bn) 2.64 3.21 +22%
Cost / Income 50.9% 49.5%
Loan Loss Ratio 2.48% 1.98%
RoE 31.4% 30.7%
RoA 5.2% 5.2%
CT1 Ratio 17.7% 15.0%
NPL Ratio 2.7% 5.1%
25
THANK YOUDr James Mwangi, CBSGroup Managing Director & CEO
Email: [email protected]
Web site: www.equitybankgroup.com
