* Equity Group Q1 pretax profit up 6 pct
* Sees subsidiaries contributing 20-25 pct to full yr profit
* Rising Tanzania bad loans weigh on performance (Adds details, quotes)
By Omar Mohammed
NAIROBI, May 9 (Reuters) - Equity Group Holdings expects its subsidiaries to contribute more to full-year profit after higher net interest income partially offset rising bad loans in Tanzania to lift first-quarter pretax profit. Banking business in Kenya provides the bulk of profits for the country’s biggest bank by customer numbers but subsidiaries in east and central Africa are contributing substantially to its growth as a government cap on commercial rates in its home market crimps profit margins.
Equity bank, which also operates in Tanzania, Rwanda, Burundi, South Sudan, Uganda and Democratic Republic of Congo, saw its quarterly performance dampened by rising bad loans, especially in its Tanzania subsidiary.
Full-year loan growth is seen between 10 to 15 percent from 13 percent in the first quarter, Chief Executive Officer James Mwangi told an investor briefing.
It expects subsidiaries to account for 20-25 percent of full-year pretax profit, having contributed 17 percent in the first quarter, Mwangi said.
Equity’s pretax profit rose 6 percent to 8.84 billion shillings ($87.44 million), on higher revenue and interest income and as it reined in costs.
Net interest income rose to 10.4 billion from 9.8 billion shillings, while non-funded income was up 7 percent to 7.2 billion shillings. The bank’s loans rose 13 percent to 305.5 billion shillings.
“We have learned to operate with interest capping as a new norm, despite the associated challenge of risk pricing,” Mwangi said. He was referring to the law capping interest rates at 4 percentage points above the central bank’s benchmark passed in 2016 which has squeezed profit margins in the banking sector.
“Definitely growth was a bit subdued, I think this was expected given that revenue lines were not growing as they used to be. We are still under the rate cap environment,” said Gerald Muriuki, an analyst at Nairobi-based Genghis Capital.
Its share of non-performing loans rose to 9 percent compared to 6.3 percent in March last year, partly due to the high rate of bad loans at its Tanzanian unit, which stood at nearly 32 percent.
Mwangi said economic shocks in Tanzania as a result of government interventions in the mining and cashew nut sectors, plus the move of government offices from the commercial capital Dar es Salaam to Dodoma, contributed to the high rate of bad loans at the subsidiary.
In late April, the bank entered a deal with London-listed financial services firm Atlas Mara Limited to buy stakes in banks in Rwanda, Zambia, Mozambique and Tanzania, part of a plan to have operations in 15 countries by 2024, Mwangi said.
The deal will scale up its current operations in Rwanda and Tanzania while establishing a presence in Zambia and Mozambique, which are projected to grow at about 5 percent in 2020.
“The rational is enter when an upward trend of the economy has taken off ... (in) the countries that are projected to grow fast, so we can ride on that wave of growth,” Mwangi said.
Equity Group also agreed a partnership with Kenya’s largest telecom operator Safaricom in late April to expand their digital financial businesses.
$1 = 101.1000 Kenyan shillings Reporting by Omar Mohammed; editing by George Obulutsa and Emelia Sithole-Matarise