Will the Equity magic end?

Picture shows Equity Bank CEO and managing director Dr James Mwangi

Where is the soft underbelly of the bank?

There are about 5.5 million bank account holders in the country and out of those, a staggering 2.5 million of them are held by one local bank—Equity Bank.

This amazing revelation illustrates the power and stranglehold that this bank has. It is hard to believe that this now giant domineering bank was a small struggling building society not too long ago.

The fairy-tale brief history of Equity Bank is often told of how as a building society the institution took the plunge and welcomed with open arms masses of ordinary Kenyans whose accounts had been forcibly shut by the big mainstream banks in the 90s. The then arrogant banks were apparently giddy from the massive easy profits that they were making from government Treasury Bills (TBs) at the time. This caused many of them at the time to see small account holders as more of a nuisance than an asset Virtually all the big banks at the time even went as far as shutting down numerous small branches countrywide.

Incidentally the widely-held view at the time was that small penny-counting account holders were just not viable for any bank. And so Equity Bank was often the target of cruel jokes in banking circles as its' demise was often predicted. But what the conservative lazy bankers in the country at the time did not see was the impact that
technology was going to have on profits and especially the ability of a bank to run numerous small accounts profitably.

It was not long before the joke sharply turned against the main-stream banks as Interest rates came down and the huge easy profits from TBs disappeared virtually overnight. The rest as they say is history and as you read this, the same banks that were so eager to shut down small accounts only a handful of years ago are now busy trying to play catch up with Equity getting back the same crowd the send packing. In fact former Equity marketing employees now litter many big multinational banks literally hawking their banking services on the streets of major cities and towns in the country.

Indeed so rapid and phenomenal has the growth of Equity Bank been that last year it suffered a hostile media attack engineered by dark unseen forces whose aim was clearly to cause a run on the bank. The fact that the bank not only survived but continued to thrive is proof enough of how solid the institution seems to be. Experts are mostly in agreement that not many banks would have endured the kind of smear campaign that Equity weathered. In the 1980s Alnoor Kassam's TradeBank also survived several storms including a run on the bank. Fascinatingly Kassam a brilliant entrepreneur who was not averse to taking risks decided to quickly pay on the spot anybody who wanted to withdraw all their cash. What followed was that most of the clients who milled around the bank to get their money out were soon milling back to re-bank it.

In the case of Equity, informed sources who do not want to be named have shown Business Africa several pieces of evidence that point to one mainstream foreign bank being the main source of the attacks. This is telling because it suggests that well-funded multi-national banks based in the country are feeling the heat generated by Equity and are even looking at the bank as a real threat to their survival and
prosperity.

One of the reasons why Equity was able to come out of the crisis virtually unscathed has to do with their sheer numbers. Meaning that they do not have to lend money to generate revenue. For instance a single transaction by the 2.5 million account holders charged at Kshs 30 would give the bank a staggering 75 million.

But surely even mighty Equity must have a soft underbelly somewhere.

The first place that most analysts look at is the customer service component. It is rather obvious that any organization that grows at the speed with which Equity grew is bound to run into some problems serving such a huge customer base. Indeed there have been complaints from customers who previously found it easy to see the branch manager and are now having great difficulties in accessing a mere credit officer. However surprisingly a number of long term customers at the bank interviewed by this writer say that customer service has in fact improved over time even as the number of account holders has ballooned. Clearly customer service may be one area that the bank is still able to deal with.

However what most analysts agree is that the greatest weakness of this now colossal bank is the issue of dominance by a single individual so that the success and future of the bank is hinged too closely to just one person. That person is of course CEO and managing director Dr James Mwangi. Observers ask what will happen after Mwangi, as brilliant as he may be now?