VISION
"...to be the preferred micro finance services provider
contributing to the economic prosperity of Africa..."
MISSION
We mobilise resources and offer credit to maximise value
and economically empower the micro-finance clients by
offering customer–focused quality financial services.
POSITIONING
The Listening, Caring Financial Partner.
MOTTO
“... growing together in trust...”
CORE VALUES
• Professionalism
•
Integrity
• Creativity and Innovation
• Teamwork
• Unity of Purpose
• Respect and dedication to customer care
• Effective Corporate Governance
Financing a Working Nation
Table of CONTENTS
PAGE
Message from the Chairman
-
1
Message from the CEO
-
4
Financial Highlights
-
8
Key Achievements
-
10
Statement on CSR
(Corporate Social Responsibility)
-
14
Report and Financial Statements
-
22
We Partner
Equity has partnered with like-minded local
and international development partners to
further her mission and vision. These
partnerships have created opportunities for
capacity building and knowledge sharing.
We Care
As a socially responsible corporate citizen, Equity Bank
has been responsive to community needs.
We Listen
In our business approach we are market-led, innovative and
customer focused.
1
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Trading Environment
The trading environment was favourable in 2005. The economy
performed well. Preliminary estimates by the Central Bank indicate
that the growth rate exceeded 5%. The financial environment was also
favourable. Inflation was falling for most of 2005, as the combined
effect of drought and crude oil prices that ignited inflation in the latter
half of 2004 dissipated. The inflation rate had fallen to 4% in October
2005, from a peak of 18% in October 2004, before rising again to 7.6%
by December as the effects of drought translated into higher food
prices. Interest rates were reasonably stable throughout the year with
the benchmark 91 day Treasury bill rate fluctuating marginally around
8%. In 2005, the shilling strengthened against all major currencies,
gaining Kshs. 6.70 on the US dollar, Kshs. 26 on the UK Pound and Kshs.
20 on the Euro. Investor confidence remained high throughout the
year in review. The NSE 20-share index closed the year at 3973 points,
up from 2945, a 35% appreciation.
The banking sector slowed down somewhat, after very brisk
expansion in 2004. Total domestic credit grew by 5% down from 17%
in 2004. Bank credit to the private sector grew by 10% down from 24%
in 2004, while credit to government declined by 8%.This is mainly as a
result of tightening of monetary conditions by the Central Bank, in an
effort to contain inflation to below the 5% policy target. The industry
performed well in most other respects. Pre-tax profits stood at Kshs.
19.7 billion up from Kshs. 13.4 billion in 2004. Asset quality, as
measured by the ratio of non-performing loans to assets improved to
11% from 16%. The industry maintained a liquidity ratio of 43% well
above the statutory 20% ratio.
Message from the CHAIRMAN
I am pleased to present to you our Bank’s annual report
for the year 2005. This occasion represents a very significant
milestone, these being the first full year results of Equity Bank
Limited, following our conversion from a building society in
December 2004.
Peter K. Munga
“
”
d) Mr Peter Gachuba having been appointed
as a director on 31st May 2005 retires in
accordance with Article 101 of the
Company’s Articles and being eligible
offers himself for election.
5. To fix the remuneration of the directors.
6. To note that the auditors Messrs Ernst & Young,
being eligible and having expressed their
willingness, will continue
in office
in
accordance with section 159 of the Companies
Act (Cap 486 ) and to authorise the directors to
fix their remuneration.
7. Any other business of which notice will have
been duly received.
By order of the Board
Mary Wangare Wamae
Company Secretary
NAIROBI, 21st March, 2006
1. Reading the Chairman’s report.
2. To receive, consider and if thought fit, adopt the Annual
Report and Financial Statements for the year ended 31st
December 2005 together with the Directors’ and
Auditors’ report thereon.
3. To approve a dividend for the year 2005 of 40% on paid
up capital.
4. To elect Directors:
a) Ms Beatrice Sabana retires by rotation in accordance
with Article 100 of the Company’s Articles of
Association and being eligible, offers herself for re-
election:
b) Mr Julius Kipng’etich retires by rotation in
accordance with Article 100 of the Company’s
Articles of Association and being eligible, offers
himself for re-election:
c) Mr. Linus Gitahi retires by rotation in accordance with
Article 100 of the Company’s Articles of Association
and being eligible, offers himself for re-election:
Notice of ANNUAL GENERAL MEETING
Notice is hereby given that the second Annual General Meeting (AGM) of the shareholders of
Equity Bank Limited will be held on Friday 21st April, 2006 at The Grand Regency Hotel Nairobi
at 10.00 am to transact the following business:
1. A member entitled to attend and vote at the meeting and who is unable to attend is entitled to appoint a proxy to attend
and vote on his or her behalf. A proxy need not be a member of the Company. To be valid, a form of proxy must be duly
completed by the member and lodged with the Secretary at the Company’s Head Office situate in NHIF BUILDING 14TH
FLOOR, not later than 10.00 am on Wednesday 19th April, 2006 failing which it will be invalid. In case of a corporate
body, the proxy must be under its common seal. A proxy form is attached to this report.
2.
Subject to approval of shareholders, the Board of Directors has resolved to recommend to members at the forthcoming
Annual General Meeting a dividend for the year 2005 of 40% of paid up capital (Kshs 2 per share) to be paid on or about
28th April 2006 to shareholders on the register at the close of business on Tuesday 18th April 2006. The register of
members will be closed for one day on Wednesday 19th April 2006.
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2
Message from the Chairman (cont’d)
On the social responsibility front, allow me also to highlight some important international
achievements. Last year our Bank was honoured by the international community by way of
invitation to address the G8 Business Action for Africa Summit in Gleneagles, Scotland, and the
UN General Assembly on the occasion of the International Year of Microfinance. Recognition of
our social mission at the highest international level is truly gratifying.
Outlook
The economic outlook for 2006 is positive, with growth expected to top 5%. This however is
predicated on normal rains in the coming season. While the outlook for the banking industry
remains positive overall, the tight monetary policy regime is likely to continue in view of the
inflationary pressures. This portends a more challenging trading environment. That said, the
Board is cautiously optimistic that the Bank will sustain growth in terms of business expansion,
profitability and stakeholder value.
During the year, we invested in a new core banking IT platform. We also opened 12 new
branches, bringing our network to 31 branches. The Board is confident that these investments
will generate increased business this year, as well as better service delivery
to our esteemed customers. I wish in this regard to thank you shareholders
for your support to the private placement of shares. These investments, and
indeed all our achievements last year, would not have been possible
without this support.
This year, we are anticipating approval from the Capital Markets Authority
to list our Bank on the Nairobi Stock Exchange. While the primary purpose
of the listing is to enable you discover the market value of your investment,
my Board believes that we should give every Kenyan who so wishes the
opportunity to be an owner of the Bank.
Conclusion
I wish to conclude by registering my Board’s gratitude to all the stakeholders who helped us to
make 2005 a successful year for the Bank; you shareholders, the Government, and the Central
Bank in particular, our development partners, business partners and our customers. I trust that
all of you will continue supporting our endeavour to take banking services to our people.
Peter K. Munga
The Board is cautiously
optimistic that the
Bank will sustain
growth both in terms
business expansion,
profitability and
stakeholder value.
Message from the Chairman (cont’d)
Results
The growing economy and a stable financial environment
contributed to very good results. Our assets grew to Kshs. 11.5
billion from Kshs. 6.7 billion at the end of 2004. The growth was
driven largely by an increase in customer deposits, which in turn
reflects growth of our customer base as well as a modest increase in
the average size of deposits. Gross income increased from Kshs. 1
billion to Kshs. 1.8 billion representing a growth of 74%. Pre-tax
profits increased from Kshs. 218 million to Kshs. 501 million, a growth
of 129 %. Profit after tax increased by 153% from Kshs. 136 million to
Kshs. 345 million.
I take this opportunity to congratulate the
management and staff for a job very well done.
Dividend
The Board is recommending a dividend of Kshs. 2 per share for the year.
Governance and Social Responsibility
Separate statements on Corporate Governance and Social Responsibility are contained
elsewhere in this report. There were some changes in the composition of the Board. Stefan
Harpe retired, Ernest Nzovu and Wagane Diouf joined the board, and Peter Gachuba was
appointed as alternate to Mr. Wagane Diouf who took over from Stefan Harpe as Manager of
Africap Microfinance Fund. Peter Gachuba represents Africap in the Eastern & Southern Africa
Region. I wish to register the Board’s appreciation of Stefan’s contribution and to wish him well
in his new endeavours.
As you are aware, a new board was inaugurated at the end of last year, following the conversion
from a building society to a commercial bank. I wish to say that the Board members have
exceeded my expectations and I am truly grateful for their dedication and resourcefulness. I wish
to draw your attention to the amendment of our Memorandum and Articles of Association
highlighted in the Corporate Governance Statement, in which the Board members voluntarily
resolved not to borrow from or engage in business with the Bank. I commend them very
sincerely for this very exemplary resolution.
Gross income
increased from Ksh.1
billion to Ksh. 1.8
billion representing a
growth of 74%. Pre-tax
profits increased from
Ksh. 218 million to Ksh.
500 million, a growth
of 129 %.
“
”
“
”
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4
Message from the CEO (cont’d)
The Bank closed the year with total assets of Kshs. 11.5 billion,
up from Kshs. 6.7 billion, an increase of Kshs. 4.8 billion,
representing 72% growth. Advances to customers took the
lion’s share of the growth, increasing by Kshs. 2.65 billion,
accounting for 56%. Other earning assets, that is, securities and
placements took Kshs. 856 million, accounting for 18%. Net
fixed assets also increased substantially, by Kshs. 633 million on
account of technology investment and branch expansion. On
liabilities, this reflects customer deposits which increased by
Kshs. 4 billion accounting for 83% of the increase. Other current
liabilities increased by Kshs. 313 million accounting for 6.5%.Tax
liability stood at Kshs. 168 million up from Kshs. 112 million.
During the year, a portion of accumulated reserves was
capitalised by way of a bonus share issue, in which every
shareholder got four shares for every one held, thereby
increasing our share capital from Kshs. 91 million to Kshs. 453
million.
Operations Review
The year was an extremely challenging one, but also one, I am pleased to report, of very
significant achievements for the Bank. The key challenges were conversion from a building
society to a commercial bank, and the implementation of a new IT platform. Both projects have
been successfully completed.
In October 2005, the Bank was admitted to the clearing house, marking the end of the
conversion process. We are now offering our customers the full range of banking services,
including current accounts, foreign exchange and trade finance services. The reception of these
services by our customers is very encouraging.
The new core banking system, Finacle by Infosys, came online in November 2005, and was fully
deployed in all the branches by the end of the year.
It was completed on time and within
budget, which is not a simple feat for IT projects of this scale. The resourcefulness, energy and
sacrifice of the staff, and the core project team in particular, made this possible. I will forever be
indebted to them for this achievement. We also rolled out ATM infrastructure. Fifty ATMs
became operational in January 2006.
With these major projects now more or less behind us, our focus this year is on quality and
efficiency. We are looking at this in terms of customer service and quality of our assets,
particularly the loan portfolio. With regard to customer service, I am confident that the
The new core banking
system, Finacle by Infosys,
came online in October…. It
was completed on time and
within budget, which is not a
simple feat for IT projects of
this scale. The dedication,
resourcefulness and energy
and sacrifice of the staff, and
the core project team in
particular, made this possible.
“
”
Financial Review
The Bank posted a pre-tax profit of Kshs. 501 million in 2005, a
creditable 129% growth over Kshs. 218 million in 2004. This reflects
robust growth of income relative to increase in expenses. Interest
earnings led the growth, contributing Kshs. 948 million, up from 459
million in 2004, an increase of 106%. Non-interest income was Kshs.
937 million, up from Kshs. 640 million in 2004 representing 46%
growth.
The robust growth of interest earnings reflects both an increase in
loans and advances to customers, as well as earnings from placements
with other financial institutions, treasury bills and bonds. Net loans and
advances to customers stood at Kshs. 5.5 billion at the close of the year,
up from Kshs. 2.9 billion at end of 2004, while treasury bills and bond
holdings closed at Kshs. 1.2 billion, up from Kshs. 578 million at the end
of 2004. The growth in assets was driven by very solid support from
customers, who increased deposits by Kshs. 4 billion raising our total
deposit base from Kshs. 5 billion to Kshs. 9 billion. In percentage terms,
contribution of interest on loans and advances increased from 33% to
38%, the contribution of interest on treasury bills, bonds and
placement increased from 9% to 14% while the contribution of non-
interest income declined from 62% to 52%.
Total operating expenses increased by 60 % from Kshs. 817.5 million to
Kshs. 1.3 billion. This reflects the relatively significant expansion of the
Bank during the year. This saw the opening of 12 new branches, and
increase in staff from 530 to 884. Staff cost increase accounted for 50%
of the increase in costs during the year. Establishment costs associated
with the branch expansion and depreciation charges contributed 20%,
and the rest is accounted for by increased operational costs. Overall,
operating costs as a ratio of operating income improved from 79% to
72%.
It is my pleasure to report to you highlights of our Bank’s
performance for the year 2005, the plans and expectations for the
coming year.
James N. Mwangi
Message from the CEO
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
Message from the CEO (cont’d)
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6
Message from the CEO (cont’d)
The Bank continues to manage all risks prudently based on
international best practice and ensuring compliance with the
Central Bank guidelines. A key element of our risk management
policy is external credit rating. I am glad to report that in 2005, the
Bank was very favourably rated by two international rating agencies.
South Africa based Global Credit Rating (GCR) awarded the Bank
investment grade ratings “A1-” and “A” on short and long-term credit
respectively. MicroRate, a US based microfinance rating agency,
awarded ∝ - (alpha minus) citing among other factors, “good
efficiency and effectiveness, low and well management risk and
good future prospects.” We have started preparations for
compliance with Basel II risk management guidelines which will
come into force in 2008.
Plans for 2006
As I indicated earlier, the most intense phase of the Bank’s
transformation is now more or less behind us.This allows us to focus
on serving our customers. This year, we are confident of very
substantial growth in customer numbers. Our main focus is to
ensure that we serve them efficiently. We plan to open a number of
new branches in markets where existing ones are congested,
expanding some of the existing ones, and upgrading some of the
busy mobile centres. We also plan to significantly increase our ATM
network. Alongside this, a vigorous campaign is underway to
encourage our customers to make use of ATMs.
Conclusion
Last year was a year of remarkable achievements for the Bank, and I believe a significant stride
towards fulfilling our African dream. I am confident that the Bank is well positioned to continue
performing well in what we believe will be an increasingly competitive market place.
I am glad to report that in
2005, the Bank was very
favourably rated by two
international rating
agencies. South Africa based
Global Credit Rating (GCR)
awarded the Bank
investment grade ratings
“A1-” and “A” on short and
long-term credit respectively.
MicroRate, a US based
microfinance rating agency
awarded ∝ - (alpha minus)
citing among other factors,
good efficiency and
effectiveness, low and well
management risk and good
future prospects.
investments we made last year will have a very significant impact on quality of customer service,
particularly as regards reducing congestion in the banking halls. We will be forever grateful to
our customers’ forbearance during the system change over. With regard to portfolio quality, I am
pleased to report that we have strengthened our credit department and processes with very
encouraging results.
Business Development
The year saw the Bank open 12 new branches bringing our network to 31 branches. The Bank
now has a presence in six of Kenya’s eight provinces. We intend to establish a presence in
Western Province this year. During the year we also acquired the retail business of the Industrial
Development Bank.
In addition to the business, the acquisition enabled us to establish a
presence on Harambee Avenue, a very prime location. In line with the growth of our branch
network and customer base, our staff complement increased to 884 from 530 at the beginning
of 2005. We are proud to have contributed to the employment challenge by adding 354 new
jobs to the economy.
Staff development continues to be a major area of focus for the Bank. We took our staff through
various courses to enhance their capacity to support business. The Bank is also putting a lot of
emphasis on leadership development and succession planning, and in 2005, several staff
members attended leadership development courses. A programme has been put in place to
ensure that all management and supervisory positions have capable potential successors in
place. During the year, the Bank established an employee share ownership programme (ESOP).
I am happy to report that through the ESOP, the staff have acquired 5.5% shareholding in the
Bank.
Turning to products, during the year we re-launched Biashara Imara
(an easy access working capital loan for micro and small enterprises)
to a resounding success. Biashara Imara has become one of the most
sought after product by our customers. By the end of the year over
5,000 customers had benefited from Biashara Imara loans. We are
particularly gratified by its success because this goes to the heart of
our mission statement: empowering our microfinance clients.
Following the acquisition of a commercial banking license, we
introduced three new products that we could not offer before,
namely current accounts, trade finance and foreign exchange. The
current account product has been rolled out in all the branches and
the customer response is very favourable. Foreign exchange service
has been rolled out in selected branches in Nairobi, and a trade
finance department has been established in the head office.
Last year, all our
management staff
attended a leadership
development course. A
programme has been put
in place to ensure that all
management and
supervisory positions have
capable potential
successors in place
“
”
“
”
>>
James N. Mwangi
Financial HIGHLIGHTS (cont’d)
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8
Financial HIGHLIGHTS
Growth in Number of Deposit Clients
Total Assets
Home to 22% of all bank accounts in Kenya and the largest bank in
terms of Customer numbers
The volume of deposits has consistently grown at an average of more
than 50% every year.
Profits during the year increased by 129%.
The Bank is adequately capitalized with a core capital to deposits ratio and
core capital to total risk weighted assets ratio of 16% and 19% respectively.
These are above the statutory minimum requirements of 8% and 12%;
The Bank continues to offer employment opportunities which saw number
of staff increase by 67% in 2005.
The Bank is adequately funded
by shareholders funds and
customer deposits.
89% of the total assets have been deployed in earning assets.
The balance sheet has grown by approximately 10 times in the last 5
years.
In 2005, the Bank was ranked 16th overall in terms of total
assets out of a total of 44 banks.
Liquidity (i.e. cash and cash equivalents) has remained consistently high
and closed at 52% in 2005 against a statutory minimum requirement of
20%.
A significant proportion of the deposits mobilized are invested in loans
and advances. Despite an average growth rate of 69% the quality of
the loan portfolio has remained good.
Growth in Loan Portfolio
Growth in Liquidity
Growth in Volume Customer Deposits
Growth in Profits before Tax
Share Holders Funds
Growth in Staff Numbers
Composition of total Assets
Composition of total Liabilities
Key ACHIEVEMENTS (cont’d)
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HRH Princess listened to a presentation on the rise of Equity Bank when on a mission to assess
the impact of MFIs during the International Year of Microcredit. She made the following
observation,“It is fantastic to hear how you have really come up with this model having come from
a very bad situation’.
After her visit, to Equity Bank Mrs Annan had this to say:“Equity is more than just a bank but also
a friend and partner of the people, helping to make their dreams come true and thus empowering
them to pull themselves out of poverty.
Nancy Barry formerly with World Bank and currently President World’s Women Banking had
this to say when she visited Equity just before conversion into a bank:“Equity Building Society
as most of you know is a leading institution in Kenya where you get attended to in 2-3 minutes, that
accounts are opened in three minutes, and you get a loan normally while you are still on the
premises. That is not true in my home town, which is the money centre of financial Institutions, New
World Bank - CGAP
President Elizabeth
Littlefield cuts cake
in recognition of
Equity Bank’s fight
against poverty,
May 2004
United Nations First
Lady Nane Annan,
wife of the U.N
Secretary General
Kofi Annan honours
Equity Bank with a
State Visit - June
2004
Equity Bank’s business model has attracted worldwide attention and in many occasions we have
been invited to represent the Bank in various international forums like the UN Conference of
Building Inclusive Financial Systems in New York.
The Bank’s Chief Executive was invited to
address the G8 Africa Business Action Conference at Gleneagles – Scotland in July last year.
It was also a great honour for Equity Bank to be invited to accompany the United Nation
Secretary General Kofi Annan to convince socially responsive Swiss investors to focus on
Africa. These achievements are the symbol of passion for collective vision of Equity Bank
shareholders, customers, staff and other stakeholders who are always connected through
various consultative forums.
A number of international luminaries have paid courtesy call on us on their mission to study
poverty reduction initiatives in Africa. Among the dignitaries who have visited us include: UN
Advisor HRH Princess Maxima of Netherlands, UN First Lady Nane Annan, CGAP President
Elizabeth LittleField and WWB President Nancy Barry.
Key ACHIEVEMENTS
The CEO Equity Bank, James
Mwangi at the the G8
Business Action for Africa
Summit
UN Advisors - HRH Princess
Maxima of the Netherlands,
Mr. Diederik Laman Trip
Chairman of ING Netherlands,
Marilou van Golste Brouwers
Zeist, The Netherlands and
Equity Bank CEO, Directors &
Management on her visit on
25th February 2005
Equity Bank Limited - The Listening, Caring F inancial Pa r tner
Key ACHIEVEMENTS (cont’d)
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Key ACHIEVEMENTS (cont’d)
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A n n u a l R e p o r t
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A sa
fe a
nd
sec
ure
pl
ac
ef
or
yo
ur
mo
ney
York City”. Equity Building Society gets it right by being customer driven and putting the customer
first. What I have seen is continuous innovation” when I asked what the secret is, this is what I got,
our customers and our ability to listen and learn how to serve our customers better are the secret to
our success.”
The Chairman of British American Insurance Company Ltd Prof.Jawooda Rawat visited Equity
Bank recently and made an extensive tour of the various departments and this is what he said
about the Bank,“I have visited many organizations I know a good one when I see one. Equity is
excellent”.
At the local scene, Equity Bank has been honoured by the Head of State who awarded the
Chairman and CEO the Head of State Commendation for their efforts to empower Kenyans
towards wealth creation and employment. Equity Bank’s customer was the winner of the
Global Microentreprenuership Award during the 2005 UN Year of Microcredit.
The Bank is holding the Kenya Institute of Bankers (KIB) Trophy for the Bank with the highest
number of qualified bankers.
In the past years, Equity Bank has enjoyed strong ratings both locally and internationally. A recent survey
conducted by Marketing Intelligence ranked Equity Bank as a the Third best Bank in Kenya. Equity Bank
has also been rated by international rating companies like Global Credit Rating and MicroRate of South
Africa, among others.
Left: Table Tennis trophy awarded to Equity Bank for taking 3rd Position in the year 2005
inter-banks sports. Also won in 3rd Position was the Basketball Trophy (right).
Centre: K.I.B Trophy of professional excellence - awarded to the institution with the
highest number of qualified bankers.
Statement on CORPORATE SOCIAL RESPONSIBILITY (cont’d)
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14
operates mobile banking services which take services closer to the people. Presently, the Bank
has 54 mobile banking centres. The Bank has a research and development programme whose
principle objective is to find ways and means of providing financial services to the poor.
Pre-University Internship Programme
Since 2001, the Bank has offered internship to the best KCSE student in every district that we
operate in and vocational employment when in university. We have realised that boys have
benefited disproportionately. Consequently, beginning this year the programme has been
expanded to two students per district, the best boy and girl, thus ensuring gender balance.
The programme assists students who have obtained excellent results at the end of their
secondary school cycle most of whom come from underprivileged backgrounds to pay for their
university education. Determination to conquer their limitations is the main character of the
students who are selected as they all look forward to pursue their studies which will help them
provide a better future for their families and the society.
Newly recruited 2005 KCSE students under ‘pre-university internship programme’ pose for a
photo with Equity Bank Chairman, CEO, the Minister for Science and Technology (Ag. Minister
for Education) and other Government officials during the launch of the programme.
Statement on CSR (Corporate Social Responsibility)
Our mission statement commits us to
"mobilise resources and offer credit to
maximise value and economically empower
our microfinance clients".
Empowering people is enshrined in our mission statement which commits us to “mobilise
resources and offer credit to maximise value and economically empower our microfinance
clients”. Corporate Social Responsibility is the commitment of business to contribute to
sustainable economic development working with employees, their families the local
community and the society at large to improve the quality of life for all the stakeholders.The end
is to combine economic prosperity with social development. Social responsibility is therefore at
the core of our mission. Over and above this, the Bank participates and contributes to various
social projects and activities as follows:
Financial outreach
Access to financial services is a critical element of lifting people out of poverty. Recognising that
many citizens, particularly the low-income, lack access to affordable banking services, the Bank
H.E. The President receives a cheque of -Kshs. 5 million from the Chairman of Equity
Bank for Famine Relief.
Famine Relief
The Bank has responded to the famine relief appeal by contributing KShs 5 million to the
National Famine Relief Fund through the Kenya Bankers Association. The Bank has also
launched an appeal for donations from staff and customers.
Statement on CORPORATE SOCIAL RESPONSIBILITY (cont’d)
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Statement on CORPORATE SOCIAL RESPONSIBILITY (cont’d)
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Farmers display their trophies awarded
by Equity Bank for ‘Best crop husbandry’
in the tea zone.
The Regional Manager (3rd left) and Branch
Manager (2nd left) donate a water tank to a
self-help group.
Mobile banking: An Equity Bank’s mobile
bank serves some customers
Equity Bank donates foodstuffs to a children’s home
Community Service
The Bank’s corporate social responsibility supports and encourages our branches to be active
members of the communities that they serve. One of the popular community activities is
supporting excellence in education by donating trophies and prizes to schools that excel or
improve their performance. Our branches in tea growing areas have an annual trophy for
excellence in tea farming. Another popular activity is financial education, provided by volunteer
staff in barazas, churches and other community gatherings. The Bank also undertakes financial
literacy at the Agricultural Society of Kenya Trade fairs in our regions of operation. All our
branches contribute to charity in their localities. The Bank has initiated a partnership with the
Meru Hospice to provide business loans to persons living with HIV.
The PA to the CEO conducts a session during a mass financial literacy day to the residents of
Kagio in Kirinyaga District.
Equity Bank also
offers a free of
charge ‘Simba
Account’ to
Public Schools to
cater for free
primary
education
programme.
(Standing l-r)
Beatrice Sabana (Director),
Peter Gachuba (Director),
Frederick M. Muchoki (Director),
Mary Wamae (Secretary to the
Board),
Wanjiku Mugane (Director),
Julius K. Kipngetich (Director),
Linus W. Gitahi (Director),
Wagane Diouf (Director) - not in
this photo
(Seated l-r)
James N. Mwangi (CEO),
Peter K. Munga (Chairman),
Benson I. Wairegi (Vice Chairman)
Beatrice M.
Sabana
Non-Executive
Director
Ms. Sabana holds a
Masters of Business
Administration
from University of
Leeds and a
Bachelor of
Education
(Business Studies
and Economics)
degree from
Kenyatta University.
She has vast
experience in the
banking sector and
is the former Chief
Executive Officer of
the Association of
Micro Finance
Institutions (AMFI).
Julius K.
Kipng’etich
Non-Executive
Director
Mr. Kipng’etich
holds Masters of
Business
Administration
and Bachelor of
Commerce
(Accounting
Option) degrees
from the University
of Nairobi. He is
the Chief Executive
Officer of the
Kenya Wildlife
Service and was
previously the
Managing Director
of the Investment
Promotion Centre.
Ernest M. Nzovu
Non-Executive
Director
Mr. Nzovu holds
a Bachelor of
Arts (Economics)
degree from the
University of
Navarra, Spain
and a Diploma in
International
Affairs from the
University of Ife,
Ibadan, Nigeria.
Mr. Nzovu has for
many years been
a consultant in
human resources
and is a director
of Hawkins and
Associates, KHI
Limited and KHI
Training.
Linus W. Gitahi
Non-Executive Director
Mr. Gitahi holds a
Masters of Business
Administration degree
from the United States
International University
of Africa and a Bachelor
of Commerce
(Accounting Option)
degree from the
University of Nairobi. He
also holds a diploma
from the Kenya
Institute of
Management. Mr.
Gitahi is the Managing
Director of Glaxo
Smithkline, Nigeria
prior to which he was
the General Manager of
Glaxo Smithkline,
Kenya.
Wagane Diouf
Non-Executive
Director (Alternate
to Peter Gachuba)
Mr. Diouf (not in
the above photo)
holds a Masters of
Business
Administration
degree from the
Georgia Institute of
Technology
(Atlanta), Bachelor
of Science degrees
in Computer
Science and
Finance from Ecole
Superieure de
Gestion (Paris). He
is the Managing
Partner of AfriCap,
based in Dakar
Senegal.
Peter Gachuba
Non-Executive
Director
Mr. Gachuba, holds
a Master of Science
degree in Inter-
national Business
from University of
Southern New
Hampshire and a
Bachelor of
Science degree
from University of
Southern New
Hampshire in
United States of
America. He is an
Investment Banker
and is AfriCap’s
Partner
responsible for
Eastern and
Southern Africa
Region.
Mary W. Wamae
Secretary to the
Board and
Company
Secretary
Mrs. Wamae holds
an LLB degree from
the University of
Nairobi, a Diploma
in Law from the
Kenya School of
Law and is a
Certified Public
Secretary (Kenya)
She is an Advocate
of the High Court
and holds a Post
Graduate Diploma
in Gender and
Development and
has over 13 years
of private practice
experience.
Frederick M.
Muchoki
Non-Executive
Director
Mr. Muchoki is
a businessman
with vast
commercial
experience. He
holds
directorships
in several
companies
including
Presta Limited
and
Continental
Business
Systems
Limited.
Benson I. Wairegi
Non-Executive
Vice-Chairman
Mr. Wairegi holds
Masters of
Business
Administration
and Bachelor of
Commerce
(Accounting
Option) degrees
from the
University of
Nairobi and is a
Certified Public
Accountant (CPA
(K)). He is the
Managing
Director of British
American (K)
Insurance
Company Limited.
James N.
Mwangi
Managing
Director and
Chief Executive
Officer
Mr. Mwangi
holds a Bachelor
of Commerce
degree
(Accounting
Option) from
University of
Nairobi and is a
Certified Public
Accountant
(CPA-K)). He has
wide experience
in the banking
industry
spanning over
16 years.
Peter K. Munga
Non–Executive
Chairman
Mr. Munga is a
Certified Public
Secretary with vast
experience in both
private and public
sector management.
He holds a diploma
in Human Resources
and Financial
Management. He
holds directorships in
several organisations
including Micro-
Enterprise Support
Programme Trust
(MESPT), British
American (K)
Insurance Company
and Equatorial Nut
Processors Limited.
Board of Directors
Wanjiku Mugane
Non-Executive
Director
Ms. Mugane is an
Advocate of the
High Court of
Kenya and holds a
Masters of Law
degree from
Georgetown
University,
Washington DC
and a Bachelor of
Laws degree from
the University of
Nairobi. She is a
Director of East
African Breweries
Limited and the
Managing
Director of First
Africa Capital
Limited.
(Standing l-r)
Mirie Mwangi (Head of Strategy)
Allan Mwangi (Head of Finance)
Papius Muhindi (Head of Risk Management)
Bildard Fwamba (Head of Internal Audit)
Mbaabu Muchiri (Head of Credit)
Peter Gachau (Head of IT)
Samuel Kamiti (Head of Alternate Business
Channels)
Apollo Njoroge (Head of Business Growth &
Development)
Peter Lengewa (Head of Organizational
Development & HR)
Major (Rtd) Marcus Mutua (Head of Security
and Administration)
Allan Waititu (Head of Operations)
Dr David Ndii (Chief Economist)
(Seated l-r)
Mary Wamae (Head of Legal Services
and Company Secretary)
Andrew Kimani (General Manager-IT
Services)
James Mwangi (CEO)
Gerard Warui (General Manager -
Customer Service)
Winnie Imanyara (General Manager -
Consultancy Services)
Peter Lengewa
Head of Organisational
Development & HR
MBA, B.A Economics &
Business Studies
member, Faculty of the
Annual Microfinance
Training Program (MFT),
Naropa University,
Boulder, Colorado, USA
Major(Rtd) Marcus
Mutua
Head of Security and
Administration
Advanced Diploma and
Certifications in Security
Intelligence from Israel,
Trained in U.S.A. and the
UK.
Mary Wamae
Head of Legal
Services and
Company Secretary
LLB, CPS (K), Advocate
of the High Court,
Post Graduate
Diploma in Gender
and Development
Mirie Mwangi
Head of Strategy
MBA, B com, CPA (K)
Papius Muhindi
Head of Risk
Management
B Com (Accounting
Option)
Previously with
Central Bank of Kenya
Bildard Fwamba
Head of Internal Audit
B.Com Accounting, CPA (K)
Previously with Central Bank
of Kenya (CBK)
and British American
Insurance Company
(BRITAK)
Stephen Mogaka
Head of Debt Recovery Unit
B.Com Accounting, LLB
Previously with KCB &
Transnational Bank
John Ayuko
Senior Credit Manager
ACIB
Previously Regional
Manager Barclays Bank
Samuel Kamiti
Head of Alternate Business
Channels
B.Sc ,CISM, Post Graduate Diploma-
Computer Science
Previously Director CRDB Bank-Dar
es Salaam-Tanzania
Dr David Ndii
Chief Economist
PHD, Msc, MA, BA
Andrew Kimani
General Manager-IT Services
BSc. (Hons) Electrical Engineering
Accredited Engineer with I.E.E.E
and worked previously as a
consultant with ICT and a
Communications Engineer with
Reuters in South Africa.
Winnie
Imanyara
General
Manager-
Consultancy
Services
B.A. Admin, Bsc.
Industrial
Psychology, Post
Graduate
Diploma.
Previously with
Reckit and
Colman,
SmithKline
Beecham,
Safaricom
Kenya, and
Kenya
Petroleum
Refineries
Mbaabu Muchiri
Head of Credit
MBA, Bed, CPA (K),
CPS(K), CISA
Previously with the
Central Bank of
Kenya and Coca-
Cola Africa.
Peter Gachau
Head of IT
Bed. Science.
Diploma in
Computer Science
Previously with
ABC & ABN &
Amro Banks.
Computer
Application
Limited
(Symphony)
Allan Waititu
Head of Operations
BIT, MCSE, CNE
Has over 15 Years Experience previously
with Daima Bank and Phoenix of East
Africa Assurance Company
Apollo Njoroge
Head of Business Growth &
Development
Bsc (hons), MIBA ( Finance)
Has over 15 Years Banking Experience
previously with ABC & I&M Banks
Allan Mwangi
Head of Finance
B.Com, CPA (K)
Previously worked with ABN AMRO
Bank, Lonrho Africa Plc and Deloitte &
Touché.
James Mwangi
Chief Executive
B-Com-
Accounting,
CPA (K)
An experienced
career banker of
over 17 years.
Previously with
Ernest & Young
and Trade Bank
Gerard Warui
General
Manager-
Customer Service
CPA(K)
Over 15 years
bank experience.
Senior Management Team
23
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CONTENTS PAGE
PAGE
Bank Information
24
Report of the Directors
25
Statement on Corporate Governance
27
Statement of Directors’ Responsibilities
29
Report of the Independent Auditors
30
Financial Statements:-
31
Balance Sheet
31
Profit and Loss Account
32
Statement of Changes in Equity
33
Cash flow Statement
34
Notes to the Financial Statements
35
25
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2005
The directors submit their report and the audited financial statements for the year ended 31 December
2005, which show the state of the Bank’s affairs.
1. PRINCIPAL ACTIVITY
The principal activity of the Bank is to offer retail banking and microfinance services.
The Bank was licensed to operate as a bank with effect from 28 December 2004.Through an extraordinary
general meeting, held on 24 December 2004, the Bank’s shareholders authorized transfer of all assets,
liabilities and the business of Equity Building Society to the Bank with effect from 31 December 2004.The
transfer of the assets, liabilities and the business of Equity Building Society was in exchange of shares in
the Bank, on a one to one basis.
2. TRANSFORMATION OF EQUITY BUILDING SOCIETY TO EQUITY BANK LIMITED
Through a special resolution on 11th December 2004 the members of Equity Building Society approved
the sale and transfer of all the business assets and liabilities of Equity Building Society (EBS) to Equity Bank
Limited;
Through a special resolution on 24th December 2004 the shareholders of Equity Bank Limited approved
the transfer of all the business assets and liabilities of Equity Building Society to the company;
The company was licensed to operate as a banking institution with effect from 28th December 2004;
The transfer of business assets and liabilities of Equity Building Society to Equity Bank Limited took effect
on the 31st December 2004. (Hereinafter called "the transfer date").
Consequent to the said transfer:
Equity Bank Limited took over all business and assets of Equity Building Society and assumed all liabilities
incurred by Equity Building Society up to the Transfer Date.
All existing investing members of Equity Building Society became ordinary shareholders in Equity Bank
Limited, each holding shares equivalent to the number of shares previously held by each of them in
Equity Building Society.
All debts payable by or to Equity Building Society became debts payable by or to Equity Bank Limited;
All charges, mortgages, guarantees, pledges, bonds and other security documents, contracts, agreements,
instruments and transactions entered into by or made in favour of Equity Building Society remain and
continue to be valid and in full force and shall at all times be deemed to be held by, issued to, entered into
and binding on Equity Bank Limited;
All accounts held in Equity Building Society are deemed to be accounts held in Equity Bank Limited.
3. RESULTS
The results of the Bank for the period are set out on page 32.
As explained in paragraph 1 above, the banking license took effect on 28 December 2004 and the
shareholders resolved to transfer assets and liabilities effective from 31 December 2004. Therefore, the
Bank did not carry out trading activities for the year ended 31 December 2004. However, the results and
cash flows of the Equity Building Society before the transfer are shown on page 32 and page 34 of this
report,respectively.
BANK INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2005
PRINCIPAL PLACE OF BUSINESS:
NHIF Building,
14th Floor
P.O. Box 75104-00200
NAIROBI
REGISTERED OFFICE:
NHIF Building,
14th Floor
P.O. Box 75104-00200
NAIROBI
LAWYERS:
Walker Kontos Advocates
Hakika House
Bishops Road
P.O. Box 60680-00200
NAIROBI
BANKERS:
Central Bank of Kenya
P O Box 60000
NAIROBI
AUDITORS:
Ernst & Young
Kenya-Re Towers, Upperhill
Off Ragati Road
P.O. Box 44286 - 00100
NAIROBI
SECRETARY:
Mary Wangari Wamae
NHIF Building,
14th Floor
P.O. Box 75104-00200
NAIROBI
27
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
STATEMENT ON CORPORATE GOVERNANCE
FOR THE YEAR ENDED 31 DECEMBER 2005
1. BOARD OF DIRECTORS
The Board of Directors of Equity Bank are committed to conduct the affairs of the Bank with openness,
integrity and accountability and in accordance to the highest standards of governance practices. The
Board consists of ten directors, nine of whom are non-executive and who have a good mix of skills,
experience and competencies in various relevant fields of expertise. The selection of directors is on the
basis of the skills and expertise and not on shareholding. The full Board meets at least once every
quarter or more often as business demands. The Board has constituted seven Committees as follows:-
a) Audit
b) Risk Management
c) Credit
d) Systems and Processes
e) Strategy and Investment
f) Governance, Board Nomination and Staff Remuneration
g) Tendering and Procurement.
The committees provide overall strategic direction, review performance, take material policy decisions
and ensure that the Bank meets its responsibilities to its shareholders and other stakeholders and that
the control environment adequately protects the company assets against major risks. Though the day
to day running of the Bank is delegated to Management, the Board retains overall responsibility.
Each of the directors has subscribed to a Code of Corporate Practices which sets out the duties and
responsibilities of the directors. The Code also provides for the evaluation of board members’
performance bi-annually. On 21st July 2005, The Board passed a resolution barring non-executive
directors from obtaining loans, guarantees and other credit facilities from the Bank during their tenure
of office. In addition, through a resolution passed by shareholders at the annual general meeting held
on 27th May 2005, the memorandum and articles of association were amended, barring directors and
their associates from trading with the Bank.
2. RISK MANAGEMENT AND INTERNAL CONTROLS
The Bank reviews of its policies, processes and procedures on a continuing basis, with a view to ensuring
the best performance of the Board and overall management of the business. The Internal Audit
Department, reporting to the Audit Committee of the Board, ensures that adequate internal controls are
in place and that they are strictly adhered to.
The Bank has established a comprehensive framework for risk management. The Bank’s business units
have identified a range of possible risks which have been mapped indicating risk drivers, frequency,
impact, risk levels, trends, risk owners and the respective mitigating strategies. The Risk Management
Department ensures compliance with the Bank’s risk limits. All risks associated with banking institutions
and those that are specific to Equity Bank, are actively managed by the respective business units and
monitored by the Risk Management Department. The Bank’s risk limits are assessed regularly to ensure
the appropriateness in line with the Bank’s objectives, strategies and current market conditions.
REPORT OF THE DIRECTORS (CONT’D)
FOR THE YEAR ENDED 31 DECEMBER 2005
4. RESERVES
The reserves of the Bank are set out on page 43 of this report.
5. LISTING OF SHARES OF THE BANK AT THE NAIROBI STOCK EXCHANGE
The Bank is in the process of having its shares listed at the Nairobi Stock Exchange in 2006.
6. DIRECTORS
The following were the directors of the Bank during the period and up to the date of this report:-
Peter Kahara Munga **
-
Chairman
James Njuguna Mwangi
-
Chief Executive
Benson Irungu Wairegi **
Fredrick Mwangi Muchoki **
Stefan Alexander Harpe
-
Retired on 31st May 2005
Wagane Diouf *
-
Appointed on 31st May 2005
Peter Gachuba (Alternate to Wagane Diouf )
-
Appointed on 31st May 2005
Beatrice Makanga Sabana
Julius Kangogo Kipng’etich
Linus Wang’ombe Gitahi
Wanjiku Mugane
Ernest Mattho Nzovu **
* Senegalese ** Retired by rotation on 27th May 2005 and were re-elected.
Article 100 of the Articles of Association of the Bank provides for retirement of directors by rotation.
7. AUDITORS
Ernst & Young have expressed their willingness to continue in office in accordance with the provisions of
Section 159(2) of the Kenyan Companies Act (Cap 486) and Section 24(1) of the Banking Act (Cap 488).
By Order of the Board
Mary Wangari Wamae
Company Secretary
.......................………………2005
29
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
ON THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
The Kenyan Companies Act requires the directors to prepare financial statements for each financial year,
which give a true and fair view of the state of affairs of the Bank as at the end of the financial year and of its
operating results for that year. It also requires the directors to ensure the Bank keeps proper accounting
records which disclose, with reasonable accuracy, the financial position of the Bank. They are also
responsible for safeguarding the assets of the Bank.
The directors accept responsibility for the annual financial statements, which have been prepared using
appropriate accounting policies supported by reasonable and prudent judgments and estimates, in
conformity with International Financial Reporting Standards and the requirements of the Kenyan
Companies Act. The directors are of the opinion that the financial statements give a true and fair view of the
state of the financial affairs of the Bank and of its operating results.
The directors further accept
responsibility for the maintenance of accounting records which may be relied upon in the preparation of
financial statements, as well as adequate systems of internal financial control.
Nothing has come to the attention of the directors to indicate that the Bank will not remain a going concern
for at least the next twelve months from the date of this statement.
Peter K. Munga
………………………….
Director
James N. Mwangi
………………………….
Director
…………..……………..
STATEMENT ON CORPORATE GOVERNANCE (CONT’D)
FOR THE YEAR ENDED 31 DECEMBER 2005
3. PERFORMANCE REPORTING
In accordance with the Banking Act and the CBK Prudential Guidelines, the Bank is committed to
ensuring that shareholders and other stakeholders are provided with full and timely information about
its performance. The performance of the Bank is regularly reported to the Board. Performance trends,
forecasts and actual performance against budgets are closely monitored. Financial reports are prepared
using appropriate accounting policies that are applied consistently.
4. ETHICS AND VALUES
The Bank’s core values are; professionalism, integrity, creativity and innovation, teamwork, unity of
purpose, respect and delight for customer care and effective corporate governance. In keeping with the
Bank’s code of ethics, all employees are expected to avoid activities and financial interests, which could
conflict with their responsibilities to the company. The welfare of staff and clients is an essential
principle of the Bank, which strives to provide all employees and clients with safe working conditions
and/or environment. The Bank maintains a policy of equal opportunity of employment for all qualified
persons and strives to provide all employees with fair terms of employment.
The Kenyan Companies Act requires the directors to prepare financial statements for each financial year,
which give a true and fair view of the state of affairs of the Bank as at the end of the financial year and
of its operating results for that year.
It also requires the directors to ensure the Bank keeps proper
accounting records which disclose, with reasonable accuracy, the financial position of the Bank. They are
also responsible for safeguarding the assets of the Bank.
The directors accept responsibility for the annual financial statements, which have been prepared using
appropriate accounting policies supported by reasonable and prudent judgments and estimates, in
conformity with International Financial Reporting Standards and the requirements of the Kenyan
Companies Act. The directors are of the opinion that the financial statements give a true and fair view
of the state of the financial affairs of the Bank and of its operating results. The directors further accept
responsibility for the maintenance of accounting records which may be relied upon in the preparation
of financial statements, as well as adequate systems of internal financial control.
Nothing has come to the attention of the directors to indicate that the Bank will not remain a going
concern for at least the next twelve months from the date of this statement.
Peter K. Munga
………………………….
Chairman
................……...2005
11 February 2006
11 February
31
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
BALANCE SHEET
AS AT 31 DECEMBER 2005
2005
2004
Note
KShs’000
KShs’000
ASSETS
Cash and bank balances
3
1,305,979
789,678
Treasury bills and bonds
4
1,254,415
578,301
Placements and balances with other banking institutions
5
2,094,320
1,914,078
Loans and advances to customers
6
5,524,360
2,873,698
Property, equipment and leases
7
1,045,222
412,269
Investment property
8
11,269
11,269
Intangible assets
9
89,477
8,403
Other assets
10
126,910
119,724
Deferred tax
11
4,591
-
TOTAL ASSETS
11,456,543
6,707,420
LIABILITIES
Customers’ deposits
12
9,047,765
5,081,456
Other liabilities
13
646,556
334,172
Tax payable
11
168,229
11,994
Deferred tax
-
8,543
TOTAL LIABILITIES
9,862,550
5,436,165
SHAREHOLDERS’ FUNDS:-
Share capital
14
452,823
90,565
Reserves
15
1,141,170
1,180,690
TOTAL SHAREHOLDERS’ FUNDS
1,593,993
1,271,255
TOTAL LIABILITIES AND SHAREHOLDERS’ FUNDS
11,456,543
6,707,420
The financial statements were authorized for issue by the Board of Directors on …………….......2006
and signed on its behalf by: -
Peter K. Munga
......................……………………
Director
James N. Mwangi
......................……………………
Director
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF EQUITY BANK LIMITED
We have audited the financial statements on pages 31 to 50 for the year ended 31 December 2005, and have
obtained all the information and explanations which, to the best of our knowledge and belief, were
necessary for the purposes of the audit.
RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS AND THE INDEPENDENT
AUDITORS
As stated on page 29, the directors are responsible for the preparation of financial statements which give a
true and fair view of the state of the affairs of the Bank and of its operating results. Our responsibility is to
express an independent opinion on the financial statements based on our audit and to report our opinion
to you.
BASIS OF OPINION
We conducted our audit in accordance with International Standards on Auditing. Those standards require
that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.
It also includes assessing the accounting principles used and
significant estimates made by the directors, as well as evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our opinion.
OPINION
In our opinion, proper books of account have been kept by the Bank, and the financial statements which are
in agreement therewith, give a true and fair view of the state of the financial affairs of the Bank at 31
December 2005 and its profit and cash flows for the year then ended in accordance with International
Financial Reporting Standards and the Kenyan Companies Act.
Certified Public Accountants
Nairobi, Kenya
11 February
33
Annual Report
and Financial Statements 2005
STATEMENT OFCHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2005
32
Equity Bank Limited - The Listening, Caring F inancial Pa r tner
ShareShareCapitalRevenueOtherProposed
capitalpremiumreservereservesreservesdividendTotal
KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000
On initial issue of share capital27,059698,134----725,193
On transfer of assets and liabilities
from Equity Building Society63,506144,48650,694299,075(11,699)-546,062
At 31 December 200490,565842,62050,694299,075(11,699)-1,271,255
At 1 January 200590,565842,62050,694299,075(11,699)-1,271,255
Transfer of capital grants to revenue reserves--(38,990)38,990---
Profit for the year---344,598--344,598
Capitalisation of share premium 362,258(362,258)-----
Revaluation of treasury bonds----(21,860)(21,860)
Proposed dividend(181,129)-181,129-
Armotisation of grant funds--(11,704)11,704---
At 31 December 2005452,823480,362-513,238(33,559) 181,1291,593,993
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2005
2005
2004
Equity Bank
Equity Building
Note
Limited
Society
KShs’000
KShs’000
INCOME
Interest earned
16
947,830
459,141
Interest expense
17
(82,327)
(63,504)
Net interest income
865,503
395,637
OTHER INCOME
Commission and other income
18
937,237
640,120
TOTAL OPERATING INCOME
1,802,740
1,035,757
EXPENSES
Management expenses
19
1,040,274
562,944
Depreciation and amortization
20
137,658
83,671
Provision for bad and doubtful debts
124,276
170,890
1,302,208
817,505
PROFIT BEFORE TAXATION
21
500,532
218,252
TAXATION
11
(155,934)
(82,117)
PROFIT AFTER TAXATION
344,598
136,135
EARNINGS PER SHARE
22
KShs 3.80
-
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
1. GENERAL INFORMATION
Equity Bank Limited provides retail banking and microfinance services in various parts of the country.
The Bank has a total branch network of 31 and employs 884 (532 in 2004) people.
The Bank is incorporated in Kenya under the Kenyan Companies Act. The address of its registered office
is as follows:
14th Floor, NHIF Building
P.O. Box 75104-00200
NAIROBI
These financial statements were approved for issue by the Board of Directors on 11th February 2006.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these financial statements are set out
below. These policies have been consistently applied to all years presented, unless otherwise stated.
a)
Basis of preparation
The financial statements of Equity Bank Limited have been prepared in accordance with International
Financial Reporting Standards (IFRS).
The financial statements of the Bank have been prepared on the historical cost basis of accounting,
except for the measurement at fair value of derivative financial instruments and available for sale
financial assets.
b)
Provisions
Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past
events, for which it is probable that an outflow of economic benefits will be required to settle the
obligation, and a reliable estimate can be made of the amount of the obligation.
Employee entitlements to annual leave and long service awards are recognised when they accrue to
employees. A provision is made for the estimated liability for annual leave and long service awards as a
result of services rendered by the employees up to the balance sheet date.
c)
Income recognition
i)
Interest income
Interest income is recognised in the profit and loss account for all interest bearing instruments
on an accrual basis taking into account the effective yield on the asset.
ii) Fees and commission income
Fees and commission income is generally recognised on an accrual basis.
d)
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash balances on hand
and amounts due from other banks, other than deposits on placement with other banking institutions.
CASHFLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2005
2005
2004
KShs’000
KShs’000
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit before taxation
500,532
218,252
Adjustments for:-
Depreciation
112,705
78,786
Amortisation of prepaid leases
47
333
Amortisation of intangible assets
24,906
4,552
Profit on disposal of village cell baking vans
(1,213)
(11,698)
Write off of computer software
9,305
778
Operating profit before working capital changes
646,282
291,003
Other assets
(7,186)
(79,756)
Loans and advances to customers
(2,650,662)
(1,266,975)
Customers’ deposits
3,966,309
1,712,867
Other liabilities
312,384
219,299
Cash generated from operations
2,267,127
876,438
Income taxes paid
(12,833)
(60,000)
Net cash from operating activities
2,254,294
816,438
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment
(747,142)
(268,254)
Purchase of intangible assets
(115,285)
-
Proceeds from sale of property and equipment
2,650
3,000
(Purchase)/sale of treasury bills and bonds
(697,974)
291,784
Placements with other banking institutions
(180,242)
(1,211,093)
Net cash flow from investing activities
(1,737,993)
(1,184,563)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of shares
-
725,192
Dividend paid
-
(18,858)
Net cash flow from financing activities
-
706,334
Net increase in cash and cash equivalents
516,301
338,209
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
789,678
451,469
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR (Note 3)
1,305,979
789,678
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
h) Originating loans and provisions for loan impairment
Loans originated by the Bank by providing money directly to the borrower are categorized as loans
originated by the Bank and are carried at amortized cost. All loans and advances are recognised when
cash is advanced to borrowers.
Specific provision is made against loans and advances considered to be doubtful of recovery. The
amount of provisions is the difference between the carrying amount and the recoverable amount, being
the present value of expected future cash flows including amounts recoverable from guarantees and
collateral, discounted at the effective interest rate of loans.
A general provision is maintained based on an evaluation of the portfolio of loans and advances in
respect of losses, which, although not specifically identified, are known from experience to be present in
any such portfolio.This provision is based on the directors’assessment of the risk of non–recovery known
to be present in the portfolio of the Bank advances.
Where a loan or an advance is deemed irrecoverable, it is written off against the related provision for
impairments. Subsequent recoveries of amount previously written off are credited to the profit and loss
account in the year of recovery.
Loans and advances are stated after deduction of specific and general provisions.
i)
Taxation
Current taxation is provided for on the basis of the results for the year as shown in the financial
statements, adjusted in accordance with the tax legislation.
Deferred taxation is provided using the liability method, for all temporary differences arising between
the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred
tax assets are recognised for all deductible temporary differences, carry forward of unused tax losses and
unused tax credits to the extent that it is probable that future taxable profit will be available against
which the deductible temporary differences, unused tax losses and the unused tax credits can be
utilized.
j)
Guarantees, acceptances and letters of credit
Guarantees, acceptances and letters of credit are accounted for as off-balance sheet transactions and
disclosed as contingent liabilities.
k)
Investments
i) Trading securities
Trading securities are securities which were either acquired for generating a profit from short-term
fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern
of short-term profit taking exists. Trading securities are initially recognised at cost (which includes
transaction costs) and subsequently re-measured at fair value based on quoted bid prices. All
related realised and unrealised gains and losses are included in the profit and loss account. Interest
earned whilst holding trading securities is reported as interest income.
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
e)
Property, equipment and leases
Property and equipment are stated at cost less accumulated depreciation and any impairment in value.
Depreciation is calculated on the straight-line basis, at annual rates estimated to write off carrying values
of the assets over the estimated useful lives.
The annual rates of depreciation in use are:-
Freehold land
Nil
Buildings
2.5%
Motor vehicles
25%
Office equipment, furniture and fittings
12.5%
Computer hardware and software
33.3%
Village cell banking vans
25%
Property and equipment are periodically reviewed for impairment. When the carrying amount of the
asset is greater than its estimated recoverable amount, it is written down immediately to its estimated
recoverable amount.
Leasehold improvements are written off over their estimated useful life or the lease period, whichever is
less.
f)
Computer software development costs
Costs associated with maintaining computer software programmes are recognised as an expense as
incurred. However, expenditure that enhances or extends the benefits of computer software
programmes beyond their original specifications and lives is recognised as a capital improvement and
added to the original cost of the software. Computer software development costs recognised as assets
are amortised using the straight-line method over a period of three years.
g)
Employment benefits
Pension obligations
The Bank contributes to a defined contribution pension scheme for its management staff. The assets of
the scheme are held in a separate trustee administered fund that is funded by both the Bank and
employees.
Statutory pension obligations
The Bank contributes to a statutory defined contribution pension scheme, the National Social Security
Fund (NSSF). Contributions are defined by local statute and are currently limited to KShs 200 per
employee per month.
The Bank’s contributions to the above schemes are charged to the profit and loss account in the year to
which they relate.
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
3. CASH AND BANK BALANCES
2005
2004
KShs’000
KShs’000
Cash in hand
506,438
304,830
Cash at bank
799,541
484,848
1,305,979
789,678
4 TREASURY BILLS AND BONDS
(i) Treasury bills: Maturing between 3-12 months
372,974
-
(ii) Treasury bonds
Cost
915,000
590,000
Maturity analysis: - Maturing between 3-12 months
325,000
-
Maturing between 1-5 years
490,000
220,000
Maturing over 5 years
100,000
370,000
915,000
590,000
Impairment
(33,559)
(11,699)
881,441
578,301
Total
1,254,415
578,301
5. PLACEMENTS AND BALANCES WITH OTHER
BANKING INSTITUTIONS
Balances with commercial banks
2,094,320
1,914,078
6. LOANS AND ADVANCES TO CUSTOMERS
a) Loans and advances (gross)
5,885,286
3,099,456
Provisions for impairment
(360,926)
(225,758)
Net loans and advances
5,524,360
2,873,698
b) Non-performing loans and advances
519,377
245,529
Provision for impairment losses
(219,068)
(130,304)
300,309
115,225
c) Maturity analysis: - Maturing within 30 days
530,600
298,017
Maturing within 30 days but before 3 months
728,865
218,636
Maturing after 3 months but within 1 year
2,293,452
1,080,902
Maturing after 1 year
2,332,369
1,447,039
Maturing after 5 years
-
54,862
5,885,286
3,099,456
d) Provisions and interest suspended:
Balance held as at 1 January
225,758
127,493
Specific provisions made during the year
104,273
157,425
Interest suspended during the year
65,294
32,524
General provisions
20,003
13,464
Write-off during the year
(54,402)
(105,148)
360,926
225,758
The Bank uses a grading system that classifies advances into grades 1 to 5 and recognizes grades 3, 4 and
5 as non-performing, in compliance with the Central Bank of Kenya guidelines.
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
k)
Investments (continued)
ii) Held to maturity investments
Investment securities with fixed maturity, where management has both the intent and the ability
to hold to maturity are classified as held to maturity, and are carried at amortised costs using the
effective yield method, less any provision for impairment.
iii) Available for sale investments
Investment securities intended to be held for an indefinite period of time, which may be sold in
response to needs for liquidity, or changes in interest rates, exchange rates or equity prices are
classified as available for sale and are initially recognised at cost. Available for sale investments are
subsequently re-measured at fair value, based on quoted bid prices or amount derived from cash
flow models. Unrealised gains and losses arising from changes in the fair value of securities
classified as available for sale are recognised directly in equity until the asset is derecognised, at
which time the cumulative gains or losses previously recognised in equity shall be recognised in
the profit and loss account.
l)
Foreign currencies
Assets and liabilities in foreign currencies have been translated at rates approximating the mean rates
of exchange ruling at the balance sheet date. Transactions during the year are converted at the rates
ruling at the dates of the transactions. Gains and losses on conversion and translation are either
included in the profit and loss account or, where appropriate, recharged to the relevant third party.
m) Dividends
Dividends are charged to equity in the year in which they are declared. Proposed dividends are shown
as a separate component of equity until declared.
n) Borrowing costs
Borrowing costs are recognised as an expense when incurred.
o)
Impairment of assets
The Bank assesses, at each reporting date, whether there is an indication that an asset may be impaired.
If such indication exists, the Bank makes an estimate of the asset’s recoverable amount. Where the
carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount. Impairment losses are recognised in the profit and loss account.
p) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is
a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously.
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Equity Bank Limited-
The Listening,Caring Financial Partner
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 (Cont’d)
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
7. PROPERTY, EQUIPMENT AND LEASEHOLD LAND (Continued)
(ii) Prepaid Leases
2005
2004
KShs’000
KShs’000
COST
At 1 January and 31 December
4,588
4,588
ACCUMULATED AMORTISATION
At 1 January
333
-
Charge for the year
47
333
At 31 December
380
333
NET BOOK VALUE
At 31 December
4,208
4,255
TOTAL PROPERTY, EQUIPMENT AND LEASES
Property and equipment
1,041,014
408,014
Prepaid leases
4,208
4,255
1,045,222
412,269
8. INVESTMENT PROPERTY
11,269
11,269
This relates to land bought by Equity Building Society, before the society’s assets were taken over by the
Bank, for resale to its members. In the view of the directors, if this property is sold in the open market, it
would fetch at least the amount shown in the balance sheet.
9. INTANGIBLE ASSETS
2005
2004
KShs’000
KShs’000
COST
At 1 January
25,063
20,930
Additions
115,285
4,133
Write off
(13,264)
-
At 31 December
127,084
25,063
AMORTISATION
At 1 January
16,660
12,108
Charge for the year
24,906
4,552
Eliminated on write off
(3,959)
-
At 31 December
37,607
16,660
NET BOOK VALUE
89,477
8,403
This represents computer application software used by the Bank to maintain its records.
7.PROPERTY,EQUIPMENT AND LEASEHOLD LAND
(i) Property and Equipment
Office
equipment,Village
Freehold land &LeaseholdMotorfurnitureWork- in-cell banking
buildingsimprovementsvehicles& fittingsprogressComputersvansTotal
KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000
COST
At 1 January 200540,34099,61844,708221,049-188,93024,479619,124
Additions-156,65610,596101,139402,44676,305-747,142
Disposals------(4,117)(4,117)
At 31 December 200540,340256,27455,304322,188402,446265,23520,3621,362,149
DEPRECIATION
At 1 January 20054,55227,24817,44763,740-87,13410,989211,110
Charge for the year93616,8169,02931,819-47,9856,120112,705
Release on disposal------(2,680)(2,680)
At 31 December 20055,48844,06426,47695,559-135,11914,429321,135
NET BOOK VALUE
At 31 December 200534,852212,21028,828226,629402,446130,1165,9331,041,014
At 31 December 200435,78872,37027,261157,309-101,79613,490408,014
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
13. OTHER LIABILITIES
2005
2004
KShs’000
KShs’000
Unearned income
335,005
247,398
Other creditors and accruals
311,551
86,774
646,556
334,172
14. SHARE CAPITAL
Authorized:
100,000,000 ordinary shares of KShs 5 each
(2004: 50,000,000 ordinary shares of KShs 5 each)
500,000
250,000
Issued and fully paid:
90,564,549 ordinary shares of KShs 5 each
(2004 : 18,112,910 ordinary shares of Kshs 5 each)
452,823
90,565
A bonus issue of four (4) ordinary shares for each one (1) ordinary share held as at 30 June 2005 was
made, resulting in additional shares of 72,451,639. The share premium amount of KShs 362,258,000
was capitalized in respect of the issue.
15. RESERVES
2005
2004
Total
Total
reserves
reserves
KShs’000
KShs’000
Capital reserves
-
50,694
Share premium
480,362
842,620
Other reserves
(33,559)
(11,699)
Accumulated profits
513,238
299,075
Proposed dividends
181,129
-
1,141,170
1,180,690
Capital reserves
This represents capital grants net of armotisation.
Share premium
This relate to the premium paid on issue of shares by the Bank.
Other reserves
This relates to diminution in value of treasury bonds.
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
10. OTHER ASSETS
2005
2004
KShs’000
KShs’000
Interest receivable on placements
47,981
17,315
Interest receivable on treasury bonds
13,047
12,936
Other receivables and prepayments
65,882
89,473
126,910
119,724
11. TAX PAYABLE
Balance Sheet:-
Balance brought forward
11,994
(4,414)
Charge for the year
169,068
76,698
Payments during the year
(12,833)
(60,000)
Overprovision in prior years
-
(290)
168,229
11,994
Profit and Loss Account:-
Charge for the year
169,068
76,698
Deferred tax charge
(13,134)
5,709
Overprovision in previous years
-
(290)
155,934
82,117
Reconciliation of taxation expense based on accounting profit:-
Accounting profit before taxation
500,532
218,252
Tax applicable rate of 30%
150,160
65,476
Tax effects on items not deducted for tax
18,908
11,222
Originating and reversing temporary differences
(13,134)
5,709
Over provision in previous years
-
(290)
155,934
82,117
Deferred Tax:-
Excess of depreciation over tax allowances
15,327
18,976
Other timing differences
(19,918)
(10,433)
(4,591)
8,543
12. CUSTOMERS’ DEPOSITS
Savings accounts
7,018,195
4,478,980
Current accounts
823,837
-
Fixed deposits
1,161,251
595,302
Interest payable
44,482
7,174
9,047,765
5,081,456
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
21. PROFIT BEFORE TAXATION
2005
2004
Equity Bank
Equity Building
Limited
Society
KShs’000
KShs’000
The profit before tax is stated after charging:-
Depreciation of property and equipment
112,705
78,786
Amortisation of intangible assets
24,906
4,552
Amortisation of prepaid lease
47
333
Auditors’ remuneration
1,200
685
Write off of computer software
9,305
-
Directors’ emoluments:
34,454
40,115
Pension scheme contributions:-
Defined contribution pension scheme
5,503
3,964
National Social Security Fund
1,601
1,000
22. EARNINGS PER SHARE
The basic earnings per share is calculated on the profit after tax for the year of KShs 344,598,000 and on
the number of ordinary shares outstanding during the year of KShs 90,564,549.
23. CENTRAL BANK OF KENYA (AMENDMENT) ACT 2000
The Kenya Bankers Association (KBA), on behalf of its members, filed an application in the Constitutional
Court challenging the operational legality of the Central Bank of Kenya (Amendment) Act 2000 (the Act),
which had received Assent on 6 August 2001. The Court delivered its judgement on 24 January 2002.
A Decree to confirm the judgement was extracted on 22 February 2002; the Decree declared that the Act
was null and void, unconstitutional and Ultra Vires the Constitution and, therefore, not binding on the
members of KBA.
On 17 April 2002, the Attorney General filed an application to vary the Decree on the matter of the Act
being Ultra Vires to the Constitution. A Consent Order to vary the Decree was granted but soon after
challenged by both the Central Bank of Kenya and the KBA. Subsequent to financial year-end, the
Central Bank of Kenya withdrew from the court action to challenge the Decree. The matter is yet to be
determined in court.
Since the Bank was established subsequent to assenting of the Act, the outcome of the ruling will
therefore not affect the Bank.
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
16. INTEREST EARNED
2005
2004
Equity Bank
Equity Building
Limited
Society
KShs’000
KShs’000
Loans and advances
692,600
362,427
Treasury bills and bonds
76,581
51,241
Placements
178,649
45,473
947,830
459,141
17. INTEREST EXPENSE
Savings accounts
68,510
41,097
Fixed deposit accounts
13,817
22,407
82,327
63,504
18. COMMISSION AND OTHER INCOME
Commission income
895,230
616,993
Other income
42,007
23,127
937,237
640,120
19. MANAGEMENT EXPENSES
Salaries and staff expenses
531,505
288,953
Establishment expenses
172,943
104,956
Provision for inter branch balance
5,000
10,000
Other administrative expenses
330,826
159,035
1,040,274
562,944
20. DEPRECIATION AND ARMOTISATION
Depreciation
112,705
78,786
Amortisation
24,953
4,885
137,658
83,671
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Equity Bank Limited - The Listening, Caring F inancial Pa r tner
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
27. RELATED PARTY TRANSACTIONS
Loans due to directors and staff
Total amount of loans and advances granted to the members of the board of directors and
employees in the ordinary course of business include:-
2005
2004
KShs’000
KShs’000
Directors
-
15,180
Employees
182,596
50,398
Shareholders
196,988
-
379,584
65,578
28. INTEREST RATE RISK
Structural interest rate risk arises when assets and liabilities in the Bank activities have different
maturity profiles or repricing dates. The primary source of interest rate risk originating in other
banking activities arises from the employment of non-interest bearing liabilities such as shareholders’
funds and some current financial instruments. When assets reprice more or in greater proportion than
liabilities during a given year, a positive interest rate sensitivity gap results and this tends to benefit net
interest income in a rising interest rate environment. Conversely, when liabilities reprice more or in
greater proportion than assets during a given year, a negative interest rate sensitivity gap results and
this tends to benefit net interest income in a declining interest rate scenario. The Bank monitors net
interest income and market value effects of interest rate positions and in different interest rate
scenarios with a view to limiting potential adverse effects on net interest income. The table on the next
page shows interest rate sensitivity gap for the Bank at 31 December 2005 based on the earlier of
maturity or repricing dates. This is not necessarily indicative of the position at other times. Off balance
sheet items do not pose any significant interest rate risk to the Bank.
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
24. FOREIGN CURRENCY EXPOSURE
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign
exchange rates. The board of directors has set limits on foreign currency positions. The foreign currency
positions are monitored on daily basis and hedging strategies used to ensure that positions are
maintained within the established limits. The amounts below summarize the foreign currency exposure
position as at 31 December 2005.
2005
2004
KShs’000
KShs’000
Assets in foreign currency
78,623
-
Liabilities in foreign currency
(1,146)
-
Net foreign currency exposure as at 31 December
77,477
-
25. EMPLOYEE COSTS
Equity Bank
Equity Building
Limited
Society
KShs’000
KShs’000
Salaries
487,213
267,228
Pension contributions
7,103
4,964
Other staff costs
37,189
16,761
531,505
288,953
26. RETIREMENT BENEFITS OBLIGATIONS
a) Equity Pension Scheme
The Bank operates a defined contribution pension scheme for its management staff.
The scheme is independently managed by British American Insurance Company Limited.
b) National Social Security Fund (NSSF)
This is a statutory defined contribution pension scheme in which both the employer and employees
contribute equal amounts.
The amounts recognised in the profit and loss account for the year is as follows:
2005
2004
Equity Bank
Equity Building
Limited
Society
KShs’000
KShs’000
Pension scheme
5,503
3,964
National Social Security Fund
1,601
1,000
Current contribution costs
7,104
4,964
49
Annual Report
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48
Equity Bank Limited-
The Listening,Caring Financial Partner
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 (Cont’d)
28.INTEREST RATE RISK (continued)
Up to Non-interest
1 month1-3 months3-12 months1-5 yearsOver 5 years bearingTotal
KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000
ASSETS
Cash and bank balances -----1,305,9791,305,979
Treasury bills and bonds--696,112484,50373,800-1,254,415
Placements and balances with other banks-1,994,320100,000---2,094,320
Loans and advances to customers530,600728,8652,112,9892,151,906--5,524,360
Property,equipment and lease hold land-1,045,2221,045,222
Investment property-----11,26911,269
Intangible assets-----89,47789,477
Other assets-----126,910126,910
Deferred tax---4,591--4,591
Total assets 530,6002,723,1852,909,1012,641,00073,8002,578,85711,456,543
LIABILITIES AND SHAREHOLDERS’FUNDS
Customer deposits 1,086,683492,718306,800109,9227,051,642-9,047,765
Other liabilities-----646,556646,556
Tax payable-----168,229168,229
Share capital & Reserves-----1,593,9931,593,993
Total liabilities and shareholders’funds1,086,683492,718306,800109,9227,051,6422,408,77811,456,543
INTEREST RATE SENSITIVITY GAP AT 31.12.05(556,083)2,230,4672,602,3012,531,078(6,977,842)170,079-
INTEREST RATE SENSITIVITY GAP AT 31.12.04711,838 617,118 1,592,141 1,662,314 (4,299,728)(285,563)-
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 (Cont’d)
29LIQUIDITY RISK MANAGEMENT
The Bank manages the liquidity structure of assets,liabilities and commitments so that cash flows are appropriately matched to ensure that all funding obligations
are met when due.Banking operations are such that mismatch of assets and liabilities according to their maturity profiles cannot be avoided.However,
management ensures that the mismatch is controlled in line with allowable risk levels.Liquidity is managed on a daily basis and incorporates known and
unanticipated cash needs.
The table below analyses maturity profiles of assets and liabilities of the Bank based on the remaining year at 31 December 2005 to the contractual maturity date.
Up to 1 month1-3 months3-12 months1-5 yearsOver 5 yearsTotal
KShs’000KShs’000KShs’000KShs’000KShs’000KShs’000
ASSETS
Cash and bank balances 1,305,979----1,305,979
Treasury bills and bonds--696,112484,50373,8001,254,415
Placements and balances with other banks-1,994,320100,0002,094,320
Loans and advances to customers530,600728,8652,112,9892,151,9065,524,360
Property,equipment and lease hold land---164,877880,3451,045,222
Investment property----11,26911,269
Intangible assets----89,47789,477
Other assets-26,002100,908--126,910
Deferred tax---4,591-4,591
Total assets 1,836,5792,749,1873,010,0092,805,8771,054,89111,456,543
LIABILITIES AND SHAREHOLDERS’FUNDS
Customer deposits 1,086,683492,718306,800109,9227,051,6429,047,765
Other liabilities388,585257,971---646,556
Tax payable-168,229---168,229
Share capital & Reserves--181,229-1,412,7641,593,993
Total liabilities and shareholders’funds1,475,268918,918488,029109,9228,464,40611,456,543
NET LIQUIDITY GAP AT 31.12.05361,3111,830,2692,521,9802,695,955(7,409,515)-
NET LIQUIDITY GAP AT 31.12.04711,838617,118 2,208,3711,662,314 (5,199,641)-
50
Equity Bank Limited - The Listening, Caring F inancial Pa r tner
NOTES TO THE FINANCIAL STATEMENTS (Cont’d)
FOR THE YEAR ENDED 31 DECEMBER 2005
30. COMMITMENTS
2005
2004
KShs’000
KShs’000
Capital commitment contracted for at year end
32,850
-
This relates to the remaining portion of contract for supply of new computer software.
31. CONTINGENT LIABILITIES
2005
2004
KShs’000
KShs’000
Guarantees and performance bonds
168,113
50,923
Litigation
9,741
5,300
177,854
56,223
Litigation amounts included above are in respect of pending court cases against the Bank. No
provision has been made on the financial statements as the directors are of the view that the case is
unlikely to succeed.
32. CURRENCY
The financial statements are presented in Kenya Shillings (KShs).
The Company Secretary
Equity Bank Limited
NHIF Building, 14th Floor
P.O. Box 75104-00200
NAIROBI
PROXY FORM
(PLEASE COMPLETE IN BLOCK LETTERS)
I/WE ………………………………..…………………………………………………………………..……..…
Of P.O. Box ………………………..……………………………, being a shareholder of Equity Bank Limited,
hereby appoint……………………………of P.O. Box………………………………………..…………...……
and failing him……………………………….of P.O. Box ………………………………………………….......
and failing him, the Chairman of the meeting as my/our proxy to vote for me/us and on my/our behalf at
the Annual General Meeting of the Company to be held on the 21st day of April , 2006 at 10.00 a.m and
at any adjournment thereof. This form is to be used to vote in favour of/against* the resolution. Unless
otherwise instructed the proxy will vote as he/she deems fit.
As witnessed by my/our hand this ……………………………………day of …………………………., 2006
NUMBER OF SHARES HELD……………………………………………………………………………………
SHARES ACCOUNT NUMBER…………………………………………………………………………………..
SIGNATURE…………………………………………………………………………………………………….
*Delete whichever is not applicable
NOTES:
1. A member entitled to attend and vote at the meeting and who is unable to attend is entitled to
appoint a proxy to attend and vote on his or her behalf.
2.
A proxy need not be a member of the Company.
3.
To be valid, this proxy form must be duly completed by the member and lodged with the
Company Secretary at the Company’s Registered Office situated in NHIF BUILDING 14TH FLOOR,
NAIROBI not later than 10.00 a.m. on 19TH April, 2006 failing which it will be invalid.
4.
In case of a member being a corporate body, this form of proxy must be completed under its
common seal or under the hand of an officer or attorney duly authorised in writing.
5.
In case of joint holders, the signature of any of them will suffice but the names of all joint holders
must be stated.
NYAHURURU
P.O. BOX 1048-20300
Tel: 065-22328, 065-32585, 065-32796
Fax: 065-22327
KERICHO
P.O Box .1562- 20200
Tel: 052-21622, 052-21635
Fax: 052 - 20544
ELDORET
P.O BOX 2210-30100
Tel: 053-2060907, 053-2060908
Fax:053-2031777
MOLO
P.O. BOX 12568-20106
Tel: 051-721169/38
Fax: 051-721169
NANYUKI
P.O BOX 1482-10400
Tel: 062- 32914/5, 32915
Fax: 062 – 32928
NAIVASHA
P.O. BOX 653-20117
Tel: 050-2020360/1/2
Fax: 2020363
EMBU
P.O. BOX 1994-60100
Tel: 068-31027, 30274
Fax: 068-30214
MERU
P.O. BOX 400-60200
Tel: 064-32920, 30059
Fax: 064-30069
CHUKA
P.O BOX 213-60400
Tel: 064-630570/1
Fax: 064-630573
KISUMU
P.O BOX 3621
Tel:057-2026162, 057-2026163
Fax: 057-2026164
MOMBASA
P.O. BOX 84618 - 80100
Tel: 041-2311222, 2311223
Fax: 041-2311224
KARATINA
P.O BOX 855-00100
Tel: 061-72524, 72709
Fax: 061-72853
KERUGOYA
P. O. Box 1056
Tel: 060-21545/21570
Fax: 060-21391
KIRIAINI
P.O .Box 217-10204
Tel: 060-51031
Fax: 060-51448
MURANG’A
P.O. BOX 1060-10200
Tel: 060-31223/4
Tel: 060-31225
MURARANDIA
P.O. Box 154- 10201, Kahuro.
Tel: 0735-966 663, 0723-722 797
NYERI
P.O. Box 2064-10100
Tel: 061-2034876, 2034324
Fax: 061-2034875
OTHAYA
P.O. BOX 436-10106
Tel: 061-52258, 52259
THIKA
P.O Box 253-01000
Tel: 067-22673, 22475, 30566
Fax: 067-22669
NAKURU-GATE HOUSE
P.O. BOX 12568-20100
Tel: 051- 2212107, 2217103,
2212089, 2215623
Fax: 051-2212174
NAKURU-KENYATTA AVENUE
P.O BOX 3178- 20100
TEL-051-2215212, 051-2215169
FAX: 051-2215114
COMMUNITY
NHIF Building
P.O. BOX 8181-00100, Nairobi.
Tel: 020-2737289/66
Fax: 020-2737347
COMMUNITY
CORPORATE
NHIF BLDG 1ST FLOOR
P.O Box 8181-00100
Tel: 2711214/6 • Fax: 2711210
CORPORATE/FOURWAYS
P.O. Box 75104-00200
Tel: 020-310852/60,
252576/83/90
Mobile: 0722 203 869, 0733
600 166
Fax: 020-252575
HARAMBEE
P.O Box 10786 00100
Tel: 318122 316467
Fax 217918
KIMATHI
P.O BOX 10785 00100
Tel: 210708/7
FAX: 210701
MAMA NGINA
P.O BOX 7879-00100, Nairobi.
Tel: 020-317624, 317822
Fax: 020-230106
TOM MBOYA
P.O .Box 10369-00400
Tel: 020-344373, 317710
Fax: 020-344372
KANGARI
P.O. BOX 8-10218
Tel: 060-44217
Fax: 060-44029
KANGEMA
Private Bag- 10202
Tel: 0603-22109
Fax: 0603-22033
HEAD OFFICE
NHIF Building, 14th floor • P.O .Box 75104-00200, Nairobi
Pilot Lines 020-2736620/17/24 • Mobile: 0722 209 591, 0733 602 500
Fax: 020-2737276 • Email: info@ebsafrica.co.ke • Website: www.ebsafrica.com
Branch CONTACTS