Equatorial Commercial Bank loss after tax stands at Sh326.4m

Equatorial Commercial Bank (ECB) has posted an after-tax loss of Sh326.4 million in the year ending December 2014 weighed down by bad loans made ahead of the controversial buyout by Mwalimu Sacco.

The bank said it set aside a total of Sh880.8 million to cover bad debts, a 915 per cent jump from the Sh87 million it set aside over a similar period the previous year.

LARGER PROPORTION

“We had to set aside a larger proportion of our funds towards accounts that have not been serviced for long as we pursue them but they are recoverable,” ECB acting Managing Director Shamira Dostmohamed said in an interview on Monday.

The performance now exposes the poor credit management system at ECB that was questioned by Ernst & Young in a due diligence report commissioned by Mwalimu Sacco last year ahead of its acquisition of a majority stake in the bank.

This is the fourth time the 32-year-old bank is posting a net loss in the country’s banking industry, where it is almost a taboo for lenders to post losses. It made losses in 2009, 2010 and 2012 that contributed to a strained capital position.

It is understood that ECB agreed to clean its books before ceding a majority stake to Mwalimu late last year in an attempt to sweeten the deal for the teachers' sacco. In 2013, the bank made a net profit of Sh55.7 million.

Mwalimu had appointed Ernst & Young to conduct a due diligence report on the bank before buying a 51 per cent stake at Sh1.6 billion last year.

In the report, Ernst & Young said ECB was not maintaining a proper classification of loans, raising uncertainty about the sufficiency of its provisions for bad loans.

In fact, it noted that Equatorial could have made a net loss in 2013 if it had set aside enough provisions for bad debts.

Mwalimu Sacco Chief Executive Officer Robert Shibutse, however, told the Nation that despite the loss, ECB was still a viable investment from the country’s largest sacco in terms of the balance sheet.