Equity Group (EQTY) has said it will no longer open new physical bank branches and will stop installing new ATMs. But that doesn’t mean Equity is quitting banking business. It only means the company has discovered better ways to serve its customers while keeping operating costs low.
Equity posted a net profit of Ks15 billion in first nine months of 2016, up from Ks12.8 billion in the same period a year earlier. The improvement was driven in part by the ongoing cost-reduction efforts in the company, backed by automation and digitization of operations. As such, the company plans to rapidly expand its mobile banking platform called Equitel.
Bringing more services to Equitel
In the latest investor update, Equity has said it would soon start processing asset-secured loans and mortgages through Equitel. So far, Equity only offers non-secured loans (loans that do not require pledged collateral), but it wants to expand the services so that business customers could borrow large amounts by pledging securities such land title deeds and vehicle logbooks.
In the latest investor update, Equity has said it would soon start processing asset-secured loans and mortgages through Equitel. So far, Equity only offers non-secured loans (loans that do not require pledged collateral), but it wants to expand the services so that business customers could borrow large amounts by pledging securities such land title deeds and vehicle logbooks.
The decision to expand Equitel’s addressable credit market comes at a time when Equity has also said its mobile banking service has seen early success. The bank said it receives 30,000 - 50,000 loan requests daily on the platform, with daily loan applications soaring to a range of 70,000 - 120,000 on weekends.
More than 2.5 million customers use Equitel and Equitel credit default rate is significantly low at just 2%. That could help Equity keep low loan losses.
Growing the loan book
The strong uptake of Equitel is helping Equity grow its loan book rapidly as well, which could lead to higher interest revenue for the company. But the big deal is cost, which are set to fall as the bank transitions customers to the mobile platform and shuts or halts opening of new physical outlets. By not opening more bank branches, Equity could reduce its rent, payroll, electricity and licence/permit expenses. For instance, the bank would require few human tellers and loan officers.
The strong uptake of Equitel is helping Equity grow its loan book rapidly as well, which could lead to higher interest revenue for the company. But the big deal is cost, which are set to fall as the bank transitions customers to the mobile platform and shuts or halts opening of new physical outlets. By not opening more bank branches, Equity could reduce its rent, payroll, electricity and licence/permit expenses. For instance, the bank would require few human tellers and loan officers.
Higher interest revenue from selling more loans through mobile and lower operating expenses could translate to more profits for Equity. And improving profits could lift the Equity stock price.
Equity stock eased 0.79% to Ks31.50 yesterday. The stock has reached a high of Ks43 and dropped to a low of Ks24.25 in the last 12 months.
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