Equity Group released their Q3'22 earnings results where PAT and EPS were above our expectations by edging up 26.62% y/y and 26.65% to KES 33.35Bn and KES 8.84 respectively. Bottom-line growth was driven by a 23.43% increase in net interest income and a 32.04% growth in non-interest income outpacing an 87.94% growth in impairment provisioning and a 31.72% growth in operating expenses. Trailing ROaE & ROaA improved to 29.98% and 3.73% respectively in 3Q22. Factoring in the growth from previous quarters, we foresee the lender closing the year with a PAT of between KES 45.00 -48.00 Bn.
- Loan book grew 20.55% y/y to KES 673.91Bn faster than the 15.51% growth in customer deposits y/y to KES 1.01T. Subsequently, the loan-to-deposit ratio shifted to 66.90%. Allocation to government securities increased 57.15% to KES 366.45Bn in 3Q22 vis-à-vis KES 233.192Bn recorded in the same period a year earlier.
- Digital transactions boosts efficiency: Non-Funded Income grew 32.04% y/y to 42.22Bn against a 23.43% y/y driven by a 28.59% y/y increased income from fees and commissions on loans and advances. The ongoing dollar shortfall on the forex market has created market inefficiencies for the lenders, as seen by the growth of forex trading income of 57.48% year over year.
- Rising yield curve continues to weigh down on the bottom line as the Fair value loss as a percentage of government securities shot up to 12.28% from a minimal 0.90% in Q3'21. The lender remains largely exposed to Kenya Eurobonds whose yields have risen in 2022 largely driven by increased risk perception by foreign investors on the back of just concluded elections and a negative outlook on emerging and frontier markets. However, we expect a correction in the long run as the lender's concentration is in the 2032 and above papers.
