Bank Profit Delight

Stanbic, DFCU rake in billions, number of loss-making banks drops to five in 2014

Barely two months in the top job, Stanbic Bank Chief Executive Officer Patrick Mweheire, the first Ugandan to head Uganda’s largest bank, might have a good reason to be optimistic about taking the company forward. His optimism was clearly evident at the presentation of the bank’s financial results for the year that ended December 2014 on March 27.

The performance of the bank would bring a smile to even the most languid shareholder. With net profit increasing by Shs 33 billion to Shs 135bn in 2014 compared to Shs102bn in 2013 and customer deposits growing to Shs 2.1tn from Shs 1.7tn in 2013, share holders can only look forward to a good dividend in the next few months.

Subject to approval at the annual general meeting, the bank’s directors recommended a final dividend of Shs 1.66 per share amounting to a total pay-out of Shs 84bn, up from Shs 50bn in 2013. But given that election years are traditionally tricky in economic terms,

The market has historically been good for Stanbic but this particular performance was remarkable as their loans and aances – the largest source of income for banks – grew by 14.3% to Shs 1.6tn compared to Shs 1.4tn in 2013. The bank’s total assets increased to Shs 3.5tn from Shs 3.2tn in 2013. We feel quite comfortable with where we are,” Mweheire said. “It is an improved growth,” he added.

Lending activity registered positive improvement in a retail space driven by household borrowing mainly to the salaried segment and the real estate sector. This also constituted balance transfers from competitor banks under business banking.

Corporate lending though remained tamed as the industrial sector especially did not show as much borrowing appetite due to the outlook of private sector demand, according to Muheirwe. This, however, is likely to positively improve in 2015. Also, Stanbic and the banking industry in general have a great opportunity to tap into government’s increased budget spending – projected at about 50% in 20142015 – thanks to key infrastructure projects in the roads and power sector.

“This expenditure is starting to trickle down into the banking industry,” Muheirwe added, which spells a good omen for bottom lines in 2015. Apparently, the corporate borrowers kept a low profile probably turned off by the high interest rates that average at about 20-22%. The rate has come down slightly compared to January 2014 but – the competition in the market notwithstanding – not at the rate many would have wanted them to. “I wish I could bring the rates lower,” Muheirwe said, quickly adding that the bank would continue to work to ensure that the bank’s profitability is reflected in their customer’s income statements. The goal is to continue driving the business upwards, something the bank has told its customers. “The sky is the limit,” Mweheire said.

Indeed, the results show that net interest income grew by 13.1% from Shs 248 bn in 2013 to Shs 280bn in 2014. On yet another positive note, the bank’s loan impairment provision declined to Shs 37bn in 2014 down from Shs 45bn in 2013, and Shs 116bn at the height of the financial crisis in 2012. Generally, loan loss rates for the bank reduced to 2.3% in 2014 from 3.1% in 2013.

DFCU’s Shs 7bn profit

Shareholders of DFCU Bank, the third-largest indigenous bank in Uganda, also have a reason to be positive about the direction the institution is taking. In continuation of the trend of making a profit in the last three years, net profit increased to Shs 41bn in 2014 from Shs 34bn in 2013 and Shs 29bn in 2012, according to financial results released last week. Total assets shot up to Shs 1.3tn in 2014 from Shs 1.1tn in 2013 and Shs 981 bn in 2012. Total income went up to Shs 204bn in 2014 from Shs178bn in 2013 though expenditure also increased to Shs 149bn in 2014 from Shs 132bn in 2013. However, shareholders will be concerned that non-performing loans and other assets almost doubled to Shs 47bn in 2014 from Shs 25bn in 2013 whereas bad debts written-off shot up to Shs 15bn in 2014 from Shs 12bn a year before. Not surprisingly, the bank – with an eye on non-performing loans – cut back on the loans and aances given out to customers in the year. Total net loans and aances were recorded at just Shs 680bn slightly up from Shs 623bn in 2013. In August 2014, DFCU was cleared by Bank of Uganda to acquire Global Trust Bank’s assets and liabilities after the latter failed to become commercially viable for over five years. This probably explains why, DFCU’s liabilities grew to Shs1.2tn in 2014 from Shs 1tn in 2013.

Elly Karuhanga, one of the bank’s directors, told The Independent that he was happy with the general performance. “Our shareholders have been getting dividends every year that shows you that we are doing well,” he said. DFCU directors recommended a dividend of Shs 23.53 per share less withholding tax to its shareholders or a total payout of Shs 12bn, down from Shs 13bn in 2013. The register is to be closed on May 15, 2015, and the dividend is to be paid by July 31 if approved by the Annual General Meeting on June 11.

Economic challenges

Mweheire said apart from the depreciation of the Uganda Shilling against the US dollar the easing of inflationary pressures from the highs of 2011 and 2012 had given banks some respite, which has hitherto enabled most banks to make some money in the market.

Throughout the year, the Central bank kept its policy interest rate – the Central Bank Rate – almost unchanged at between 11-11.5%, which saw average commercial bank lending rates stabilize at between 20-22%. Also, inflation declined steadily from 6.9% in January 2014 to 1.8% by close of 2014. This means borrowers found it somewhat easy to borrow at friendly rates as opposed to the over 28% recorded at the end of 2011 and some parts of 2012. Indeed, Mweheire said this environment was somewhat better for businesses to grow during the year. If or not this will be sustained through 2015 however remains to be seen.Generally, the banking industry balance sheets recorded double-digit growth in 2014 after a slower growth in 2013. The industry holdings of government securities grew by over 20% indicating that banks continue to prefer lending to the government than to their private customers. As a result, private sector credit recovery remained slow with pockets of growth noted in trade, agriculture and real estate. However, loan quality continued to improve over the year but some concerns remain in some portfolios.

But bank lending picked up with total bank loans doubling to 14% up from 6.2% in 2013. Foreign currency-denominated loans also grew to 21.6% compared to local currency loans that grew by 8.7%. Growth year-on-year was driven by real estate, trade and agriculture.

On another positive note, the non-performing loans to total gross loans ratio fell from 5.6% to 4.1% as at December 2014, while the volume of non-performing loans declined from Shs 465.8 bn to Shs 389.6 bn. The number of loss-making banks has been almost halved from nine in 2013 to five in 2014.

However, analysts remain cautiously optimistic about 2015 with the general elections barely a year away. The lower than expected momentum and the damage to exports and remittances from the instability in South Sudan suggest that GDP growth in 20142015 would most likely be in the 6.5% range, according to Mweheire, though private consumption might be supported growth in credit to the private sector.

Indeed, Mweheire suggested that more still needs to be done about the unreliable power, high energy costs, inadequate transportation infrastructure, and corruption, which said are bottlenecks to economic development and investor confidence in the country.

Listed on the Uganda Securities Exchange, the shares of the two banking giants have remained popular on the bourse. Stanbic’s was selling at Shs 34 per share as of March 27 while DFCU’s share price remained at Shs 850 per share. However, analysts and investment brokers said they were waiting to see how the market would respond to the results.

Going forward in 2015, Mweheire said the market and trading conditions are expected to be more volatile than they were in 2014, and shareholders and directors will be watching keenly to see how the organization performs in his first year as the CEO. He however didn’t appear perturbed by what lies ahead. “We have on our side a g balance sheet, a powerful brand, great client relationships and a fantastic team,” he said.

Source : The Independent


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