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Equity Group
Putting people first before profit
Equity Group Managing Director and CEO, Dr James Mwangi talks to Mr. Ochieng Oloo, CEO Think Business, about their robust response to protect their customers and staff against the vagaries of the COVID-19 outbreak and how the pandemic put the Bank’s purpose and essence to test. He also talks about how they are building back better and emerging even stronger than they have ever been.
Ochieng Oloo
So let’s get started by talking about the impact of COVID-19 and the disruption it has caused in the economy over the last one year or so. People have suffered and some have lost their lives. Specifically, how has COVID-19 disrupted the operations of Equity?
Dr. James Mwangi
The COVID -19 environment has been with us now for nearly 17 months as a health pandemic. It has disrupted markets. It has mutated to become an economic disruption and eventually become a humanitarian concern. Equity being market led, these market disruptions play into the activities of our customers and so they reflect on our performance. The biggest impact has been on customers’ economic activities. Specifically, the COVID-19 containment and management protocols by government, particularly those that end up with the closure of businesses, where curfew starts at 7.00pm and ends at 4.00 am. It means that the hospitality industry, for example, is shut down and as a result, all those SME businesses that are in the hospitality industry value chain and populate the entire ecosystem are affected. Their employees are at home, businesses are shut and landlords have lost their tenants. So when you look
at the myriad of challenges that COVID-19 has created, both in the health sector, in the economic sector and eventually in the humanitarian sector, all these aggregate in the balance sheets of banks. Customers have lost their cash flows. Those cash flows then play out in terms of deposit or funding to the banks and their inability to service obligations in the form of loans to the bank. We have had to accommodate them. We did a deep dive into each of the sectors and we determined that up to 45% of the sectors were adversely affected. But after
one year, we realized only 32% of customers needed support and we gave them moratoriums on loan repayments. This was either through loan rescheduling or reprogramming that entailed giving more moratorium, both on principal and interest. The moratorium depended on the period that we anticipated each sector would be affected. We gave schools in the private education sector up to one year, it turned out they were affected for nine months. We gave airlines and hotels, the tourism sector generally, up to three years because that’s the period that we expected it would take the sector to recover. In total, we accommodated loans of up to Ksh 171 billion. I am glad that 33% of them have commenced repayment. Of those whose terms had expired, 95% have been able to maintain their new repayment schedules, suggesting that the economy is becoming resilient. People are adapting to the new COVID-19 environment as the normal operating environment. We are also making progress in terms of recovery.
Ochieng Oloo
We are in a better position right now to look at the long-term impact of this pandemic. What do you foresee in terms of impact on the economy over the next say, five years or so?
Dr. James Mwangi
COVID-19 is a disrupter of human activities, and as a result, it will have long term effects on the way society is organized. First, we must accept that COVID-19 will be with us going forward. It’s for us as human beings to know how to cope with this new disease, whether it is through vaccines, continued applications of the COVID-19 management protocols, like social distancing, foregoing hand shakes or working from home. The world has adapted, and the environment has adapted to COVID-19. We have seen the world becoming more digital. We now see telemedicine, online shopping, digital banking and even digital events and meetings taking centre stage. For instance at Equity, 45% of the staff are working from home.
The whole world is going to reorganize itself through this disruption. It has to adapt to the new environment. This will change the way things have been done. However, the disruption and transformation have risks that have crystallized. In the banking sector, not every client could adapt to the new environment and some businesses had to close. As Equity, using IFRS 9 we had to take a one-off lifetime risk assessment of what this meant. You saw our balance sheet last year carried Kshs 27 billion one-off provision of what we assumed to be the lifetime risk that was inherent in our own book. It was a pointer that we must do business differently. Because if you are anticipating that Kshs 27 billion worth of loans will not be repaid, that’s a statement about the kinds and number of businesses that will
not survive this disruption. The second one was the rise of green offshoots
and you saw our loan book, despite the crisis, went up by 30% simply because capital was quickly reorganized in the market place. Capital was reallocated to areas like digital platforms, online businesses, health (to
produce PPEs), setting up country and regional supply chains, where global supply chains have been disrupted. We are now seeing regional manufacturing. The lesson we have learnt is that things will never be the same again. We are now adopting what we thought were temporary measures, like staff working from home, we have realized that, in some segments, productivity is better. There are some people who are better suited working from home to avoid spending hours on the road in
the morning and in the evening. Some of the risks that we perceived of working from home we have been able to mitigate. Of course, that has a very significant impact on landlords and properties because if half of the staff are working from home, it means you no longer need half of the office space that you had taken. The question is what happens to half of the office
space?
In the hospitality industry, I think people are now becoming more comfortable with home deliveries of food as opposed to them Equity Group Managing Director and CEO, Dr James Mwangi 120 2021 | BANKING SURVEY
going to eat in restaurants. Restaurants are now becoming more like kitchens, they are competing not on the seating space, but on the quality of food and deliveries. And people seem to be getting used to it. That you can
sit at home and have food delivered by the restaurant. That is a different business model from what they were used to. People are leveraging on technology. Platforms are increasingly becoming the enablers of digitization which is increasingly leading to the aggregation of business. The last decade, saw a lot of de-corporatization and suddenly, we are seeing significant corporatization because of online businesses. Maybe de-corporatization will come back with the emergence of small Apps, but the question is, what will happen when super Apps come on board? The world is being reorganized by this crisis, because human behaviour adapts very
quickly. One of the biggest lessons I’ve learnt from this crisis is about human resilience. Human resilience means adaptation. Adaptation that is so big, that it is transformative. That transforms the world which we live in, transforms behaviour patterns and reorganizes the lifestyle of societies. Those are some of the things that we are constantly seeing. And it appears that it’s the beginning of change. The beginning of transformation.
Dr. James Mwangi
But it also means that landlords have to design houses much better now that the house is also a work environment. Essentially, that changes, other things. Public transport too has to be completely reorganized. What used to be the peak hours or rush hours has completely changed. With education also going online, the huge road traffic that we used to have at these peak times has reduced. COVID-19 has had its own advantages and disadvantages. For a full year when we endured COVID-19 , there was no human traffic and no massive traffic on our roads. But recently when the economy started picking, we have also started getting back to our old
routines.
Mr. Oloo
There are a lot of lessons that we have learnt from COVID-19 as you’ve said, but let us focus a little on how we performed in managing this crisis. So, in terms of crisis management, how do you feel that we performed generally, not just as Equity Bank, but as a country, an economy and even the government? What lessons do you think we have learnt? And is there something that you think we might have done differently?
Dr. James Mwangi
I think two major lessons stand out.
The first one is uncertainty. I think we have lived through a huge uncertainty that nobody had predicted. I think the concept of the black swan now has been brought home very strongly by this crisis. The second one is a lesson on change. It appears the only thing constant in our lives is change. We had to change, to adapt ourselves to a new environment. This has ignited other things. Change management and crisis management have become the real buzzwords, in the field of management and leadership. It is leading in uncertain times, leading in crisis, leading under change
management.
To me, those are huge lessons that we have learnt that will impact our leadership theories and management schools as we move forward.
We have also learnt how fragile the environment that we live in is. One day in early March 2020, it was all good. End of March, we were in crisis mode. I think we underestimated how fragile the world is. It’s not as resilient as we thought it is. The world was disrupted by a virus and almost brought to a
standstill. We closed the global air space and we closed our hospitality industry in its entirety. We were gripped by a kind of fear that the world has not seen, maybe in the last 100 years. We were gripped by uncertainty. I
think this crisis brought the soft underbelly of the world to the forefront. We realized that the economy we had built was not resilient enough because of the level of economic disruption that we witnessed. It has raised questions about globalization and global supply chains. I think ultimately, the skewed distribution of PPEs and vaccines has brought out the worst of the world. That national interests override human interest. Developed countries that
have the capability to produce PPEs and vaccines decided it was them first before considering the rest of humanity and they disrupted the global supply chains. That, I think is a big lesson that the world and our
economy needs to take. You saw that we took the challenge when we led the manufacturing of PPEs in the country and for the region, because the global supply chains had been completely disrupted. You can see now, Africa is campaigning for regional vaccine manufacturing because they can’t get vaccines. I think global governance structures and systems have been put to question. Their fairness in terms of treatment of people and their ability to influence the global economy, has been severely questioned.
The multilateral institutions and their effectiveness has been put to question. Particularly in times of crisis. But human beings have again proved to be a race that is resilient, because we are slowly seeing the global economy recovering, we are seeing the developed world now opening up confident that the crisis has been muted. We’re also seeing the growth of the economy starting to show positive signals. Over time human beings will be tested, but they will rise to the challenge of any crisis, reflecting the resilience of humanity.
Mr. Oloo
In a nutshell, if you look at where we sit right now, in your assessment, would you say that we are generally in a better position right now than probably a year ago in terms of preparedness and in terms of how solid the economy is?
Dr. James Mwangi
I think we are in a better position. One, we have been able to overcome fear. We have realized that this is a crisis like any other crisis and it has its own solutions. Overcoming fear has proven to be the biggest stride that we have made through this experience. The second one is that we have started gathering significant information and data about the crisis. Now we are not just guessing, we can analyze the data that we have and make appropriate decisions. The data is starting to generate significant knowledge and insights that are suitable for decision making. Predictable models have also emerged and scientists and medics are able to predict with precision expected outcomes and possible interventions. This means that credible decisions can be made. Economists have also started to build viable models. I think COVID-19 has become the new normal. We are accepting that it is with us as part of the diseases that we have to live with. The human race is quickly adapting, whether it is through vaccines or herd immunity. So, overcoming fear, getting data and information that is turning into knowledge, simulation of models that help us and adaptation to the new environment gives me hope that the worst is behind us
Mr. Oloo
Banking is basically about how we manage our risks. I think there’s been a lot of lessons learnt by the banking sector. What has changed in the case of Equity Bank in terms of your risk management? I know that this pandemic impacted your liquidity like it did for a number of other banks. In terms of risk management, and also being able to ensure that you always have the liquidity that you need to deal with a crisis like this, what have you done as a bank?
Dr. James Mwangi
I think the biggest asset we have come to appreciate in our risk management is our brand value. Equity Bank’s greatest resilience came from trust capital. Our customers behaved rationally in very unique circumstances, because they believed and trusted in the bank. The second aspect that came strongly in helping us to manage the risk, is sticking to our purpose. A purpose presented to the public is a promise. Keeping that promise during a crisis creates predictability and reliability and authenticates management. I think Equity was heavily authenticated by the responses that it chose, one, to save lives, two, to continue transforming lives, while still expanding opportunities for people even during the crisis. That validation that it will hold to its promise, made Equity a safe and secure place for people. And we saw Equity experience a 51% growth in terms of customer deposits. Liquidity ceased to be an issue. Equity proactively, borrowed close to Kshs 100 billion just to forestall any liquidity challenges that would arise, but it turned out that the borrowing was overwhelmed by an almost three times growth in deposits. Which speaks about the trust and the confidence that our customer base had, even amidst a crisis of this magnitude. The third one is faith and belief in leadership. Nobody knew how this would play out. But our customer base believed that the leadership was competent, and capable. I saw that particularly with my staff. They took the advice we give them seriously. We have about 8,000 staff and out of that only 300 have been infected, suggesting it’s less than 1% of the entire staff force and their dependents that was affected simply because they trusted the advice that was given to them by leadership. We also learnt that our risk management was hedged on the trust that our customers and staff have in the institution. The authenticity of leadership and the fact that our staff and customers were not abandoned by the organization at that point of need. The organization moved away from looking at the balance sheet and profitability and focused on protecting its customers and that somehow resonated very, very well and helped us to mitigate any shocks. The stakeholders never created shocks, so we were dealing with external shocks, as opposed to internal shock. We also realized how sophisticated risk management had become. It was no longer the linear risks that we knew how to manage, like liquidity and quality of asset, yet they were very important. What we were dealing with was more of a crisis on the people aspect. It was a question of the risk of losing your staff and losing entire branches and teams because of infections. The biggest risk was interaction between customers and staff and yet Equity was built on the basis of unique emotional bonds with the customer. That was really tested. How do you continue with the mantra and a competitive advantage model built on socio emotional bonds with the customers? That to me was the biggest risk. Protecting both became the answer. That is why we triggered Equity Afia into action to train our staff. We also triggered 56 county and national referral hospitals to protect our customers and when we realized that was not enough, we sought partnership with 60 faith-based hospitals to support the government hospitals to protect our entire customer base, which we extended to the community. That is how Equity spent Kshs 1.7 billion. It was because of the unique interactions that we have with the society. And it is these interactions that held the highest risk.
Mr. Oloo
It appears to me that communication acquired a much larger role in the entire process of dealing with this crisis. There were different ways of doing this. But for you to actually reach out to your staff and customers, you had to come up with new ways or probably better ways of communicating with them. How did you do it?
Dr. James Mwangi
It appears to me that communication acquired a much larger role in the entire process of dealing with this crisis. There were different ways of doing this. But for you to actually reach out to your staff and customers, you had to come up with new ways or probably better ways of communicating with them. How did you do it?
Mr. Oloo
I think Equity was quite lucky, in the sense that this pandemic came at a time when your Board Chair is a medical doctor, Prof. Isaac Macharia. So, I think your understanding of what was going on and your preparedness, was a lot better than other institutions. But there are those who say that you may have overreacted. Looking at even the amount of money that you borrowed, Kshs 100 billion, just in readiness for whatever the eventuality. And even the contributions that you made of Kshs 1.7 billion. If you look at other institutions, in this market, none responded to this crisis in the way you did. In hindsight would you say you used a rungu to kill a mosquito?
Dr. James Mwangi
We were very lucky to have a professor of medicine, a ENT surgeon at the helm of the Bank. He also had the support of 42 Equity Afia medical doctors, organized under Equity Afia franchise. I think I would categorize the response of Equity as an indicator of who Equity is. I do not see it as either as an under or overeaction. It speaks of the empathy that Equity has, in terms of its relationship with its staff. As you saw, the first thing we did in April last year when the pandemic struck is, we gave our staff bonuses of up to threemonths salary to prepare them to cope with the situation. In April this year, the bank adjusted salaries by up to 50% increment because we saw the devastating effect of this crisis. It doesn’t mean that money can take away the challenges of the pandemic, but it enables people to cope with the challenge much better. So this response of Kshs 1.7 billion in donation, distributing PPEs, buying solar panels, chargers, radios and phones for the Wings to Fly students, giving these 17,000 kids a monthly stipend of Ksh 4,000 for nine months, speaks of who Equity is. It speaks about the authenticity of Equity and the sincereness and genuineness, but more importantly, it speaks of Equity sticking to its purpose. We are an organization that is purpose driven. The purpose was to save lives, change the lives, create honor and dignity and expand opportunities during the crisis. Equity never abandoned its purpose. So the scale of the response meant acceptance of responsibility. Equity is the company with the largest asset base in the banking sector, so we had to step up and demonstrate leadership. Still, Equity, turned out to be the most profitable bank in 2020. We showed that profits don’t come before people, people come before profits. People come before us. So I’m very proud that Equity chose people first. We chose our purpose first and stuck to it. We got inspiration from our purpose to manage the crisis.
Mr. Oloo
I think you did very well on that. It is always better to be prepared.
Dr, James Mwangi
One more thing, at the peak of the COVID-19 crisis, in 2020, the deposit base of the bank went up by 53%. And as you saw, in the first quarter of 2021, that momentum was sustained at 51%. So the response translated into trust capital that elevated the bank, to a level we never envisaged. That made our two-pronged approach of being defensive and also offensive in handling the crisis materialize. We defended the population and because we had prepared for growth and believed we could turn a crisis into something positive. It transformed the Bank, making it the largest company by a balance sheet in East and Central Africa.
Mr. Oloo
Now, the long term picture of this organization, has it changed as a result of the pandemic?
Dr. James Mwangi
Now, the long term picture of this organization, has it changed as a result of the pandemic?The purpose of the Bank has not changed. So the essence, and the core of the Bank has not changed. But how we deliver our promise, how we deliver the purpose, has significantly changed. The Bank has been transformed by the change of behaviour of the stakeholders. The customers have become more digitized. Only 2% of our transactions now happen on our premises. Customers have decided that they want online banking. They prefer digital offerings. That behavioural change of the customer has also transformed us. Our staff on the other hand, have shown preference for working from home. So it has transformed our engagement even with the internal customer. I would say the bank is no longer the same, but the difference is on the ‘How’. The ‘What’ has remained the same. The essence has remained the same. The soul of the Bank has remained the same. The heart of this Bank has remained the same, but the delivery mechanism has completely been transformed. 98% of our customers are now accessing their services online. We now regard ourselves as a technology platform with a financial services license. We no longer regard ourselves the way we used to regard ourselves, as a Bank. We see ourselves as a platform. We are now asking ourselves questions, because we can see that customers prefer to get everything online and preferably, from home. Is it possible for us to layer other services on the same platform, such that we now focus not only on offering banking services, but on fulfilling lifestyles, so that we are enablers of lifestyles. So that the platform becomes much bigger to accommodate all lifestyles. Hopefully, the prediction that banking services may be necessary but banks may not be necessary going forward, may be fulfilled by Equity’s response to this crisis, as we look at how to evolve going forward and look at our offering into the future. Lastly, Equity has reaffirmed the position of people in business, the position of ethics and values in business. We did what we did because we are an ethical organization. We did what we did, because we are a purpose first organization. We are purpose driven, we are a value-based organization so we can be predicted in terms of behavior. The place of people, the place of ethics and the place of purpose, has almost been institutionalized in this organization.
Mr. Oloo
The theme for this year’s survey is “Building back better after COVID-19”. How are you building back better in the aftermath of COVID-19? I have seen your Q1 results and they are quite impressive, and your projections seem very exciting. What are you looking at? Half year is also done, so you probably have a better picture of where you are headed now. In terms of the performance of the bank and what are doing now to build back better?
Dr. James Mwangi
Equity has chosen to build back better after COVID 19. Our interpretation of what better means, is purpose first. We have learnt that we have to prioritize people before profit, we have realized the value of all our stakeholders rather than just staff and shareholders. We have realized we have to embed this Bank in the communities that host it and take care of those communities as major stakeholders. We will have to focus on shared prosperity with communities because we have realized that the asset and the capability that made us navigate seamlessly through this crisis was trust capital. We’ll reinvest much more in that trust capital. We chose people over profit in 2020. But we still emerged a strong bank, we grew better in reputation, the brand value grew significantly, so we have an appreciation of what purpose first means. The second thing is that we’ll build back better by choosing to become a role model to the corporate world on how corporates should behave. So, we’ll go beyond Equity and try to influence the world. I have become a champion of purpose first, I am among the 12 top corporate executives signatories globally, who are championing this cause. In 2020, I won the Oslo Business for Peace Award, what is commonly known as the business for peace Nobel Prize. That speaks a lot about the outside world view of who we are. Harvard Business School, other schools and the UN have written about Equity, and how Equity acted during the crisis as an example of how the world can be made resilient. We’ll focus on building back better, one, by ensuring we are as inclusive as we can be. Nobody should be left behind. Everybody should be able to access our services and those services must be affordable. More importantly, we have to focus on the impact of Equity on society. We’ll invest in evolving the soul of Equity, giving it the humaneness and the human face that allows it to sustain the trust that it has won within communities, and jealously protect that trust asset that has enabled us to navigate and emerge stronger. In terms of our promise, to the shareholders, we will focus on becoming more efficient, not to grow profits through margins, but through efficiency. We will embrace all the lessons that have been learnt by society. The need to support society to live side by side with a crisis such as the one that has been caused by COVID 19. We’ll try and digitize the bank to make it virtual. To remove distance and time in banking, and essentially focus more on supporting lifestyles, rather than just offering financial services, because we have realized what was disrupted by this pandemic was lifestyles. The solution we will be offering will be supporting lifestyles, using financial tools, as opposed to just providing financial services. In terms of performance, we have come to appreciate that when you achieve significant trust capital, people bank with you more because they trust you. And that explains why 2020 was our fastest growth year over the last 10 years. They paid their loans and met their obligations. As a result, we predict that 2021 will be the best ever year in the performance of Equity Bank. Given the fact that we adequately assessed the lifetime risk on the loan book at the beginning of last year and took the hit last year. We expect to sustain the growth in deposit as customers continue to consolidate their banking with us. We expect to do better in lending as we perfect our selection mechanism that ensures nobody is left behind.
Lastly, digitization has made us very very efficient. We are witnessing significant improvement in our cost income ratio, which will make the bank much more profitable because we are leveraging on efficiencies and volumes as opposed to margins. So to the shareholders who for two years have sacrificed their dividends by prioritizing humanity first before profit, I think they will have nothing to regret because the future looks very promising.
Ochieng Oloo
Finally, lets talk about leadership. There obviously have been a lot of lessons for you as a leader in the course of this pandemic. How has this shaped you going forward as a leader?
Dr. James Mwangi
This has been the best MBA course that one could ever go through. A practical MBA, where you’re solving practical problems. Problems beyond the internal environment. As a leader, I have learnt a lot. The decision to prioritize lives and people beyond profit is something I am now able to articulate. The issue of shared prosperity as opposed to being an extractive enterprise is something I’ve learnt. Focusing on staff first within an organization and appreciating the human capital, because it is the most important asset in the organization. I can advocate for that. I have learnt the lessons that it is not strategy and scenarios first, but purpose. Your purpose should provide answers, even in the most difficult circumstances. That you should seek solutions and answers from the essence, not from fear. That’s something I can talk about a lot. Adaptability is what maybe has prepared Equity for a much better future, not resisting,
not doubting, but accepting change and quickly adapting to. This is what has created the Equity of the future within a period of one year.
It is about being an ethical organization. If IFRS 9 says assess the lifetime potential loss of a loan and provide for it, ethical practices requires that you do precisely that, even if it takes away three years’ worth of dividends because of provisions. Finally, let me say that I believe that we succeed, not because of the absence of risks, but because of the courage to manage risks. That is one other big lessons that I have learnt. I should add that during a crisis, leadership
visibility, communication and articulation of the issues is paramount. Because that’s what leadership is all about. People look upon the
leader.
Courage and confidence, even in moments of uncertainty helps a lot to steer the ship and to align people to the objective. Ethical behaviour allows you to manage uncertainty. You just remain an ethical player and let the chips fall wherever they fall, but remain ethical, because everybody is looking at you. Just be natural, be authentic, don’t act during a crisis. There are no heroes in death. So act ethically, professionally and authentically. People can see through you. I didn’t realize how much people read from your behaviour until this crisis happened. Those are the lessons I have learnt. The lessons are more human than academic. That in a crisis, it’s about putting people first, showing empathy and care. Constantly think about the wefare of the people, then the rest will follow.