DFCU’s Mixed Results

Local bank DFCU has written off bad debts amounting to Shs 15.65 billion, according to a financial statement published in the local press on March 18. The figure means that the bad debts written off have almost doubled from Shs 8.73 billion in 2012.

Also as a further indication of the aerse market situation in 2013, the bank’s provision for “bad and doubtful” debts grew to Shs 13.7 billion from Shs 11.78 billion the year before. However, in a mixed bag for shareholders, is the indication that profit for the year grew to Shs 34.6 billion, while total assets have risen by Shs 225 billion to Shs 1.22 trillion.

But total liabilities have increased to Shs 1.064 trillion from Shs 865.55 billion a year earlier, while total shareholders’ equity – the capital received from investors in exchange for stock – has risen from Shs 135.78 bn to Shs 161.16 billion in 2012.

Also probably as another indication of public confidence in the company, customer deposits shot up to Shs 700.28 billion from Shs 591.28 billion a year earlier. However, retained earnings grew to about Shs 93 billion up from Shs 70.4 a year before, which means that shareholders are to get less in dividends as the directors preferred to re-invest or to pay its debt, which also grew substantially.

Consequently, the directors recommended a somewhat smaller dividend of Shs 17.84 per share, down from Shs 18.55 per share in 2012. This is the lowest dividend to be paid since 2007 when Shs 13 per share was paid out. Comparatively for instance, in 2010 a dividend of Shs 37.1 per share was paid to shareholders, up from Shs 31.02 in 2009.

DFCU shareholders will probably take comfort from the fact that generally, the size of dividends to shareholders in the financial services industry is increasingly becoming smaller – a clear indication that profitability in the industry is on a steady decline due to various factors.

First, the industry has continued to attract more players – currently standing at 25 commercial banks exclusive of a myriad of microfinance institutions and SACCOS – a development that means that the space for competition, particularly for valuable clients – both individuals and the SME market – has become more severe.

There has been a significant reduction in interest margins on loans – the industry’s core business. Indeed, the statement shows that interest on loans rose by just Shs 11 billion in 2013 compared to 2012. Also, interest on deposits declined substantially from Shs 7 bn in 2012 to Shs 3.8 in 2013.

Yet, operating expenses shot up by Shs 11 billion though it did not stop profit after tax income from rising to Shs 34.8 billion from Shs 29.89 billion in 2012. Secondly, banks have taken a hit since 2008 as all the telecommunication companies are now operating the mobile money service, which has become the favourite mode of financial transaction at the expense of the formal banking system. Thirdly, the economy was still reeling from the shocks of 2011-2012, which saw inflation and the exchange rate touch new highs, thus affecting productivity and the market appetite for credit.

Key dates:

The dividend will be paid out July 25, 2014 to shareholders on the register as at close of business on May 30. Given the significantly low earnings for shareholders, the management will be expected to prepare to answer some difficult questions from shareholders at the annual general meeting scheduled for June 26 at Sheraton Hotel in Kampala.

The bank is in the final leg of a five-year plan (2011 – 2015) in which it expected to leverage a massive investment on a modern IT platform to launch innovative service delivery channels and extend its footprint so as to reach out to a wider customer base.

Performance on this front has been somewhat limited and its new state of the art headquarters in Nakasero, which it expected to start using in 2013, is yet to be completed. The bank, which has 31 branches countrywide, was listed on the Uganda Securities Exchange (USE) in 2004 and its shares are currently trading at Shs 1,205 each.

Having been launched by the Commonwealth Development Corporation (CDC) of the UK and the government through the Uganda Development Corporation (UDC) as of Development Finance Company of Uganda Ltd, the institution later restructured by bringing on board other international partners.

Mid last year, the bank got a massive lift when Rabobank of the Netherlands increased its stake when CDC decided to sell a portion of its 60.02% shareholding in the bank. NORFUND bought 17.48% of the shares, which effectively increased its shareholding to 27.54%, while Rabo Development B.V – a 100% subsidiary of Rabobank – acquired 27.54% of the shares.

CDC retained only 15% of the shareholding in the bank. The bank, whose core business is retail banking, development and institutional banking, as well as treasury, currently has more than 3,700 local and international shareholders including individuals and companies.

Subject to regulatory approvals, the directors have recommended the issuance of bonus shares in the proportion of one share for every one ordinary share currently in issue and fully paid up – representing a total of more than 248.6 million shares.

Source : The Independent

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