Equity rethinks expansion plan as pandemic hits

Equity taking steps to shore up its liquidity as pandemic drives deposit withdrawals and impacts loan repayments as people lose jobs and businesses struggle to run.



Equity Group (EQTY) has terminated the discussions to acquire several banking operations belonging to Atlas Mara. The group last year opened talks to purchase Atlas Mara’s four bank businesses in Rwanda, Tanzania, Zambia and Mozambique.

Equity sought to acquire the banks to extend its footprint across the East Africa region. It currently operates in six countries and aims to enter more countries as part of its mission as a pan-African bank.

But the coronavirus disease (Covid-19) outbreak has caused Equity to reassess its expansion plan and investments. The virus pandemic has hit businesses across industries and shredded millions of jobs. Consequently, banks have seen a spike in deposit withdrawals while borrowers struggle to repay their loans, causing liquidity challenges for many banks.

Equity has responded to Covid-19 fallout by taking steps to preserve its cash and support its customers to ride out the storm. In supporting customers, the group has revised lending terms of more than Ksh90 billion in loans or 25% of its loan volume, such as allowing customers to pause interest payments and extend the duration of their loans for additional three years.

Kenya’s major banks like the KCB Group (KCB), Absa Bank Kenya PLC (ABSA) and Co-operative Bank of Kenya (COOP) have also revised their loan terms to offer relief to borrowers during this pandemic.

Equity girding for the worst as pandemic hits lucrative loans business
Equity CEO James Mwangi said ending the Atlas Mara talks would help the group conserve cash to deploy it toward supporting its customers cope with pandemic disruptions.

Acquiring the Atlas Mara banks would have cost Equity more than Ksh10 billion. Although it planned to pay for the transaction with its stock, Equity still needed to inject cash into the banks. That would have squeezed Equity’s liquidity if it went ahead to close the deal at this challenging time.

Notably, both Equity and Atlas Mara said the decision to end the deal talks was a mutual agreement. But it is not clear whether the collapse of the talks would leave Equity on the hook for a breakup fee payment in favour of Atlas Mara.

The need to shore up liquidity during this pandemic saw Equity drop its dividend plan. The group planned to distribute Ksh9.5 billion in dividend to shareholders out of Ksh22.6 billion profit it made last year. It planned a payout of Ksh2.50 per share. But it decided to cancel the dividend payment to preserve the cash as it girds for the worst amid the coronavirus turmoil.

Equity shares fell 0.14% on Wednesday to close at Ksh34.90. The shares are down 35% this year. There has been a wave of selling in the stock market in the wake of Covid-19 outbreak.

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