Equity Group led by Kenyan banker James Mwangi cuts debt by $191 million amid high interest rates

Mfonobong Nsehe -

Key Points:

  • Kenyan bank Equity Group cut debts by $192 million in Q1 to fight rising interest costs. Total debt dropped to $94 million by March.
  • Rates jumped from 3.5% to 12%, prompting Equity to focus on repaying floating-rate loans from development banks.
  • Equity’s Q1 profit rose 25% year-on-year, showing operational strength. However, higher loan provisioning slowed growth.

Equity Group Holdings, a Nairobi-based financial services giant led by Kenyan banker James Mwangi, reduced its debts by Ksh25.4 billion ($191.74 million) in the first quarter of 2024 in a strategic move aimed at managing surging interest costs.

By the end of March, Equity’s total debts dropped to Ksh12.5 billion ($94.34 million), a sharp decrease from Ksh150.5 billion ($1.14 billion) in December. This reduction resulted from early repayments of both short-term and long-term loans.

Short-term debts decreased from Ksh23.6 billion ($178.11 million) to Ksh15.5 billion ($116.98 million), while long-term debts fell to Ksh109.6 billion ($827.17 million) from Ksh126.9 billion ($957.74 million).

Interest rate spike forces loan repayment

“Elevated interest rates necessitated some tough decisions,” said CEO James Mwangi. “We opted to repay long-term loans, which were pegged to floating rates, as the effective interest rate on our borrowings ballooned from 3.5 percent to 12 percent.”

Most of Equity’s debts are sourced from development finance institutions (DFIs) such as the European Investment Bank, the International Finance Corporation, the African Development Bank, Proparco, and the CDC Group.

These loans, primarily denominated in U.S. dollars, have floating interest rates linked to benchmarks like the London Interbank Offered Rate (Libor) or the secured overnight financing rate.

Equity Group’s expansion drive

Under James Mwangi’s strategic leadership, Equity Group has expanded its presence across East and Central Africa, including Uganda, Tanzania, South Sudan, Rwanda, and the Democratic Republic of the Congo. Mwangi, a prominent figure in Kenyan finance, holds a 3.38-percent stake in Equity Group, representing 127,809,180 ordinary shares.

Despite focusing on debt reduction, Equity Group reported a robust performance in Q1 2024, with profit after tax increasing by 25 percent year-on-year to Ksh16 billion ($122.25 million), driven by operational efficiency across all business segments. However, the growth momentum was tempered by higher loan-loss provisioning costs as the bank increased its cover for non-performing loans.