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Equity Bank, Kenya Public Market Assessment

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Equity Bank, Kenya Public Market Assessment August 2015 Table of Contents 1. Profile of Equity Bank A. Business Overview B. Management C. Public Market Performance and Share Register 2. Equity Bank Benchmarking 3. Indicative Valuation (Confidential) 4. Investment Case 5. Proposed Transaction Structure (Confidential) Appendix A. Financial Projections B. Historical Performance Details C. Kenyan Banking Sector Overview D. US$ / KES Forward Curve and Sovereign Bond Yield Curves 1. Profile of Equity Bank A. Business Overview Equity Bank Group Summary Overview Overview Key operating information • Equity Bank offers retail banking, microfinance, and • Total assets: KES373bn (US$3.6bn) related services to individuals, and small and medium • Loan book: KES225bn (US$2.2bn) sized enterprises • BV of equity: KES61bn (US$586m) • The bank was founded in 1984 and is headquartered • Customer deposits: KES277bn (US$2.7bn) in Nairobi, Kenya. In 2006, the bank was listed on the • 47% share of bank accounts in Kenya Nairobi Stock Exchange and it also trades on the • Number of customers: 9.7m Uganda Securities Exchange • Mobile banking customers: 3.2m • The Bank has subsidiaries in Kenya, Uganda, South • No of Agents: 17,523 Sudan, Rwanda, and Tanzania • Number of Branches: 228; number of ATMs: 601 Bank operational divisions Bank • Leading consumer bank in East Africa, with a strong base for pan- African growth • Equity Investment Bank (EIB) is a wholly owned subsidiary of Equity Bank Limited Investment Bank • Provides investment services for its corporate clients: brokerage, custodial and advisory Foundation • Aims to improve people in bank’s communities using its existing infrastructure, human capital and brand Insurance • Offers insurance products providing cover for risk mitigation of banking products • Offers a mobile channel that integrates bank accounts and other financial products and services Finserv • Provides value-added telecom products and services Source: Company information, Bloomberg, Financials as of March 31, 2015 5 Jambo Equitel Profile Overview Strategic Advantage • Equity Bank has recently launched Equitel as an MVNO • Equitel is priced very close to Safaricom’s MPESA, the to offer all traditional telecom services in Kenya: voice, dominant telecom services provider in the market SMS, data and mobile money • However, one key differentiator is in the provision of • Through Equitel, Equity bank plans to leverage its mobile money services – Equitel’s tariff of 1% of the banking platform to offer a better, cheaper and safer transaction amount is cheaper than Safaricom’s M- mobile money product which, in turn, is expected to PESA service drive voice, SMS and data usage • Being owned by a financial services institution, will • The MVNO is seen as an additional banking channel enable Equitel to provide a greater variety of services that will help to sustain Equity’s existing business such as micro-lending and insurance, than MPESA model based on high-margin retail growth • Is expected to capitalize on the widening mobile • Had over 416,000 customers as of December 2014 banking usage in the country Evolution of Channels Source: Company information, Exotix Research Notes: Financials as of December 31, 2014; MVNO – Mobile Virtual Network Operator 6 Summary Financial Overview Funding and Asset Breakdown Funding Distribution: KES 373bn (US$3.6bn) Total Assets: KES 373bn (US$3.6bn) Loan Breakdown: KES 222bn (US$2.4bn) 7.3% 2.9% 2.3% 6.8% 6.4% 7.0% 3.0% Cash balances Small enterprises Deposits 13.1% Investment securities Consumer Shareholders' equity 42.8% 16.4% Deposits due 24.1% Medium enterprises 10.2% Borrowings Net loans and advances Micro enterprises Property and equipment 74.3% Other liabilities 60.3% Agriculture Other assets 23.0% Historical Metrics 400 372.5 344.6 350 300 277.7 274.8 243.2 245.6 250 214.2 224.8 196.3 195.2 200 167.9 171.4 143.0 144.2 150 135.7 100.8 104.4 113.8 100 78.3 63.3 69.8 63.8 51.6 60.9 34.3 42.9 50 22.9 27.2 0 2009 2010 2011 2012 2013 2014 1Q 2015 Total Assets Total Equity Net Advances Customer Deposits Source: Company information Note: Financials as of March 31, 2015; Loan Breakdown by sector as of December 31, 2014 7 Equity Bank Group Historical Financials: Income Statement US$ / KES fx avg 79.2 88.9 84.5 86.1 88.0 Income statement Income statement KESm CAGR US$m CAGR 2010 2011 2012 2013 2014 10-14 2010 2011 2012 2013 2014 10-14 Interest income 13,775 19,339 30,848 31,890 35,367 26.6% Interest income 174 218 365 370 402 23.3% Yield on assets 12.7% 12.6% 15.4% 13.5% 12.6% Yield on assets 12.7% 12.6% 15.4% 13.5% 12.6% Interest expense (2,062) (3,116) (6,884) (5,399) (6,192) 31.6% Interest expense (26) (35) (82) (63) (70) 28.2% Cost of funds (%) 2.2% 2.3% 3.9% 2.6% 2.5% Cost of funds (%) 2.2% 2.3% 3.9% 2.6% 2.5% Net interest income 11,713 16,223 23,964 26,491 29,175 25.6% Net interest income 148 183 284 308 332 22.4% Net interest margin (%) 10.8% 10.5% 11.9% 11.2% 10.4% Net interest margin (%) 10.8% 10.5% 11.9% 11.2% 10.4% Total non funded income 10,440 12,447 12,863 15,370 18,474 15.3% Total non funded income 132 140 152 179 210 12.4% Total operating income 22,153 28,670 36,827 41,861 47,649 21.1% Total operating income 280 323 436 486 542 18.0% Operating expenses (11,297) (14,361) (17,970) (20,656) (24,758) 21.7% Operating expenses (143) (162) (213) (240) (281) 18.5% Cost to income ratio (%) 51.0% 50.1% 48.8% 49.3% 52.0% Cost to income ratio (%) 51.0% 50.1% 48.8% 49.3% 52.0% Net additional provisions (1,905) (1,630) (1,608) (2,402) (1,590) (4.4%) Net additional provisions (24) (18) (19) (28) (18) (6.9%) Net operating income 8,950 12,679 17,249 18,803 21,301 24.2% Net operating income 113 143 204 218 242 21.0% Share of associate profit 95 155 171 201 1,064 83.2% Share of associate profit 1 2 2 2 12 78.4% Tax expense (1,913) (2,509) (5,340) (5,726) (5,213) 28.5% Tax expense (24) (28) (63) (67) (59) 25.1% Net income 7,132 10,325 12,080 13,278 17,152 24.5% Net income 90 116 143 154 195 21.3% Net Margin (%) 32.2% 36.0% 32.8% 31.7% 36.0% Net Margin (%) 32.2% 36.0% 32.8% 31.7% 36.0% Operating KPIs CAGR 2010 2011 2012 2013 2014 10-14 Number of customers ('000) 5,908 7,151 7,838 8,407 9,660 13.1% Growth % 35.2% 21.0% 9.6% 7.3% 14.9% Mobile banking customers - 1,282 2,166 2,777 3,200 nm % of customers on mobile banking - 17.92% 27.63% 33.03% 33.13% Number of transactions ('000) - 68,208 81,133 89,375 97,300 nm Growth % nm nm 18.9% 10.2% 8.9% ATM - 34,476 33,429 33,750 38,200 nm Branch - 27,999 26,709 28,125 26,500 nm Agency - 5,735 19,977 28,125 32,600 nm Mobile banking - - - - - nm Number of branches 165 186 208 216 228 8.4% Number of agents 875 3,234 6,344 10,260 15,785 106.1% Number of staff 5,563 6,243 7,060 7,788 8,690 11.8% Cost per staff (988) (1,018) (1,078) (1,218) (1,313) 7.4% Source: Company information 8 Equity Bank Group Historical Financials: Balance Sheet Balance sheet Balance sheet KESm CAGR US$m CAGR Assets 2010 2011 2012 2013 2014 10-14 Assets 2010 2011 2012 2013 2014 10-14 Property & equipment 6,971 7,592 9,072 9,796 10,528 10.9% Property & equipment 88 85 107 114 120 8.0% Cash and cash equivalents 18,610 35,406 45,136 34,649 48,407 27.0% Cash and cash equivalents 235 398 534 402 550 23.7% Government securities 31,228 30,502 41,101 44,572 48,369 11.6% Government securities 394 343 487 518 550 8.7% Loans and advances to customers 78,302 113,825 135,692 171,363 214,170 28.6% Loans and advances to customers 989 1,281 1,607 1,991 2,435 25.3% Intangible assets 1,927 1,352 1,415 2,955 3,425 15.5% Intangible assets 24 15 17 34 39 12.5% Investment in associate 1,260 1,366 1,457 1,574 - (100%) Investment in associate 16 15 17 18 - (100%) Other assets 4,721 6,251 9,297 12,819 19,671 42.9% Other assets 60 70 110 149 224 39.2% Total assets 143,018 196,294 243,170 277,729 344,572 24.6% Total assets 1,806 2,209 2,879 3,226 3,917 21.4% Liabilities Liabilities Customer deposits 97,764 144,165 167,913 195,153 245,582 25.9% Customer deposits 1,234 1,623 1,988 2,267 2,792 22.6% Borrowing 7,464 13,769 25,679 26,736 30,242 41.9% Borrowing 94 155 304 311 344 38.2% Deposits and balances of banks 7,167 1,023 890 - - (100.0%) Deposits and balances of banks 90 12 11 - - (100.0%) Other liabilities 3,420 3,052 5,772 4,285 4,972 9.8% Other liabilities 43 34 68 50 57 7.0% Total liabilities 115,814 162,009 200,254 226,174 280,796 24.8% Total liabilities 1,462 1,823 2,371 2,627 3,192 21.6% Total shareholders equity 27,204 34,285 42,916 51,555 63,776 23.7% Total shareholders equity 343 386 508 599 725 20.5% Total liabilities and shareholders equity 143,018 196,294 243,170 277,729 344,572 24.6% Total liabilities and shareholders equity 1,806 2,209 2,879 3,226 3,917 21.4% Source: Company information 9 Equity Bank Group: Key Performance Indicators Financial KPIs CAGR 2010 2011 2012 2013 2014 10-14 Total shares in issue - end of year (m) 3,703 3,703 3,703 3,703 3,703 - Price (KES) 27 16 23 32 51 17.4% Adjusted EPS (KES) 1.9 2.8 3.3 3.6 4.6 24.5% Adjusted DPS (KES) 0.8 1.0 1.3 1.5 1.8 22.5% Dividend yield % 3.0% 6.3% 5.4% 4.7% 3.5% BV equity / share 7.3 9.3 11.6 13.9 17.2 23.7% Profitability Average yield on assets 12.7% 12.6% 15.4% 13.5% 12.6% Average cost of funding 2.2% 2.3% 3.9% 2.6% 2.5% NIM 10.8% 10.5% 11.9% 11.2% 10.4% ROA 5.8% 6.1% 5.5% 5.1% 5.5% ROE 28.5% 33.6% 31.3% 28.1% 29.7% Loan quality NPL ratio % 4.5% 2.8% 3.1% 5.2% 4.3% Cost of risk % 2.6% 1.7% 1.3% 1.5% 0.8% Multiples Price / earnings ratio 13.9x 5.7x 7.1x 8.9x 11.0x Price / book value multiple 3.6x 1.7x 2.0x 2.3x 2.9x Price / tangible book value 3.9x 1.8x 2.1x
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    Provider Id Provider Name 00203ea2-8be5-434b-82aa-a968cdccc71c Centric Bank 002b95bb-472e-4316-8e26-eefcb26af6dd Northland Area Federal Credit Union (MI) 004139df-1233-4846-8007-655902d283f3 Forte Bank - Business 005119b7-d11b-4149-8875-d810ce1119f7 Town & Country Bank - UT 00678017-3dd3-48d9-96dd-49f2a75df3ad Fulton Financial CashLink East 00686d39-a1ca-4a18-bb42-88c5e9af95e4 Iowa Nebraska State Bank(Now BankFirst (NE)) 006ccff2-c2b5-461b-93fe-a345efdbf885 Lanco FCU 0080f77d-a78c-41e8-b9c4-8d49cdec1f6a Boat U.S. MBNA CC 0093d12e-d5de-456c-a1d8-f10770405be9 1st Bank of Sea Isle City - Business Banking 009515cf-b944-4002-88fe-66aaeace40ed Citizens Bank & Trust (OK) 00c5e357-6071-4a90-ac44-4eb96183e162 First Utah Bank 00cdd410-208a-47dd-bc29-a9627cadf68f Sentry Bank 00f83a8c-5959-4604-a7ec-bd00583ad99f Farmers State Bank (IN) 0122685c-3eaa-4a8a-ab9c-616ba5f6b24e Home Federal Savings and Loan Association of Collinsville 014c1f5b-0bd5-45a7-b648-86f4c869b01b Grasslands Federal Credit Union 0169eb89-0c80-445d-a13a-8933b512d4cf ZZ OGRAF SLLEW 016afc49-673c-4f09-b3d5-f24a7a1eea24 Atlantic Capital Bank (GA) Sun West Bank, Las Vegas NV - Business Banking (Now City National 016d3ab7-b5d3-482a-8767-822372a1e380 Bank, CA - Business Online) 0176b604-c675-4412-a792-8d1578bdf48c First Port City Bank (GA) 017aeb6a-9d51-4c9b-8ead-b8d3a5a95f53 First National Bank and Trust (FL) 019e9909-f57d-4e3c-b494-751939a0c234 First National Bank Minnesota - Business Banking 01a03d99-694c-4888-a79a-5bcf3ae3e650 First Iowa State Bank Albia 01ab7eee-ec30-49b9-8476-4804f34abb31
  • TARIFF TYPE of SERVICE REMARKS CURRENT CHARGES (W.E.F 01.11.2015) BANKERS CHEQUE Customers (Debit to A/C) Kshs

    TARIFF TYPE of SERVICE REMARKS CURRENT CHARGES (W.E.F 01.11.2015) BANKERS CHEQUE Customers (Debit to A/C) Kshs

    Your Preferred Bank TARIFF TYPE OF SERVICE REMARKS CURRENT CHARGES (W.E.F 01.11.2015) BANKERS CHEQUE Customers (debit to A/C) Kshs. 350/- Customers (depositing cash) Kshs. 600/- plus cash handling charges Non-Customers Kshs. 600/- plus cash handling charges DRAFTS Customers Kshs. 600/- Non-Customers Kshs. 750/- CHEQUE BOOKS 25 Leaves Kshs. 437.50 (local and foreign currency) 50 Leaves Kshs. 875/- 100 Leaves Kshs. 1,750/- (above charges are inclusive of Stamp Duty of Kshs. 2.50) COUNTER CHEQUES Per leaf Kshs. 50.00 (inclusive of Stamp Duty of Kshs. 2.50) UNPAID CHEQUES Financial reasons Kshs. 1,350/- (INWARD & OUTWARD) Technical reasons Kshs. 1,000/- STOP PAYMENT OF CHEQUES Notification charges - local cheques Kshs. 270/- - foreign cheques Kshs. 1,500/- RTGS CHARGES Inward Free Outward Kshs.600/- EFT CHARGES Inward Free Outward Kshs. 300/- TT CHARGES (FOREIGN) Beneficiary to share charges with the Kshs. 1,500/- remitter Beneficiary to receive full amount Kshs. 3,000/- Indian Rupee TT / ZAR Kshs. 2,000/- TT Amendment Charges / Tracers USD. 55/- irrespective of the currency TT PAYMENTS (LOCAL) Third party to collect Kshs. 1,000/- INCOMING FUNDS USD $ 10.00 GBP Equivalent $ 10.00 EUR Equivalent $ 10.00 ACCOUNTS 1) Current Account: Kshs. 10,000/- Minimum Balance Kshs. 275/- Surcharge per month for non-compliance of minimum balance Kshs. 20/- per entry, minimum Kshs 500/- ledger fees per month 2) Foreign Currency Accounts Accounts available in USD, GBP, EUR and Rand 3) Chemi Chemi Accounts Kshs. 5,000/- Minimum Balance for Personal Account Kshs. 1,000/- Minimum Balance for Wananchi Account Kshs.
  • 2 Giro Commercial Bank Ltd Was Acquired by I&M Bank Limited

    2 Giro Commercial Bank Ltd Was Acquired by I&M Bank Limited

    COMMERCIAL BANKS WEIGHTED AVERAGE LENDING RATES PER LOAN CATEGORY AND MATURITY (%) Loan Category PERSONAL BUSINESS CORPORATE OVERALL RATES Loan Maturity Overdraft 1-5 Years Over 5 years Overdraft 1-5 Years Over 5 years Overdraft 1-5 Years Over 5 years 1 1 1 1 1 1 1 1 1 1 Banks Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 Dec-16 Mar-171 Jun-171 1 Africa Banking Corporation Ltd 14.1 13.5 13.1 14.0 13.1 13.7 13.9 13.7 13.9 14.2 12.8 13.7 14.1 13.2 13.8 14.0 14.0 14.0 14.3 13.5 13.7 14.1 12.0 13.70 14.0 13.3 13.7 14.1 13.1 13.7 2 Bank of Africa Kenya Ltd 14.0 14.0 14.0 13.9 13.9 13.9 14.0 14.0 14.0 13.9 13.9 13.9 14.0 14.0 14.0 14.0 14.0 14.0 13.8 14.0 14.0 13.8 13.8 13.75 14.0 14.0 14.0 13.9 13.9 13.9 3 Bank of Baroda (K) Ltd 14.0 13.8 14.0 14.0 14.0 14.0 14.0 14.0 14.0 13.9 13.9 13.9 13.9 13.9 13.9 14.0 14.0 14.0 13.9 13.9 13.9 13.9 13.9 13.93 14.0 14.0 14.0 13.9 13.9 13.9 4 Bank of India 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.00 14.0 14.0 13.9 14.0 14.0 14.0 5 Barclays Bank of Kenya Ltd 14.0 14.0 13.5 14.0 14.0 14.0 14.0 14.0 14.0 13.8 13.4 13.5 14.0 13.8 13.9 13.8 13.4 13.7 13.7 13.6 12.7 13.4 13.3 13.33 13.6 13.4 13.5 13.8 13.7 13.8 6 Stanbic Bank Kenya Ltd 13.9 13.8 10.3 13.9 13.8 13.6 13.9 13.9 13.6 12.6 13.7 10.2 13.9 13.9 13.4 13.7 13.8 13.9 12.3 12.7 10.3 13.3 13.3 13.97 14.0 14.0 14.0 13.3 13.6