October 19, 2017

Stanbic Bank Uganda manages to buck trend

March 30–Amidst a tough environment, it is notable and worthy of some praise that Stanbic Bank Uganda (SBU) raised its operating profit from UGX 203 billion in 2015 to UGX 254 billion in 2016.

In 2016, the Uganda banking system faced a difficult year which cumulated in the closure of Crane Bank and the sell-off of its viable assets to dfcu Bank.

Bank of Uganda is now saddled with the rest of the baggage including loans that probably will never be repaid. But as the regulator BoU also has the responsibility to pay off Crane’s creditors as best as it can with the remaining assets.

Last February, Ugandans went to the polls. This always creates uncertainty. During the General Elections period, public sentiment swings between excessive exuberance and outright pessimism.

Banks had to operate between these two extremes and still hope to make some money even as BoU moved to toughen its monetary policy with a stiff Central Bank Rate. That means higher borrowing costs for business.

Although presidential elections took place in February, lest we one forget, campaigning (or the big spending) started months before then.  Hence the BoU stance to limit rising inflation.

According to BoU, total bank credit grew by only 3.7 percent in June 2016 compared to the 19.7%   the previous year. This lower lending was seen across all sectors of the economy, except for personal loans.

It also reflected the slowdown of economic activity, coupled with commercial banks reduction in lending in light of rising non-performing loans (NPLs). NPLs contributed to a decline in the banking systems’ returns on assets and equity together with a sharp slowdown in asset growth.

SBU was one of the few banks to buck these difficult operating conditions. It not only made a $50 million-plus after tax profit, but can also boast of capital reserves levels double the statutory BoU requirement.

SBU’s latest financial results clearly show that with prudent management and adequate risk mitigation strategies, banks can deliver a solid performance that inspires shareholder confidence. SBU generated revenues of UGX 643 billion during 2016 and earned a profit after tax of UGX 191 billion, a rise of 21% and 27% respectively. Total deposits went up by 25% to UGX 3 trillion.

In 2016, there was much hand wringing due to the high interest rates and a growing clamour from some quarters that it was a terrible mistake to have privatised the former Uganda Commercial Bank. They reasoned that the whole point of selling off the majority stake in UCB to South Africa’s Standard Bank some 16 years ago, was to control runaway interest rates. Currently, Stanbic Bank offers the second lowest rate in the market.

Others are even more forthright. They want Uganda to follow Kenya and have the government rather than the marketplace determine interest rates.  There is some irony here. In early March, President Uhuru Kenyatta told Kenyans he is just as concerned as everybody else at the sharp reduction of available credit since the law that capped interest rates was passed by parliament last year.

The cost of doing business in Uganda remains relatively high. But throwing up our hands in despair and shout ‘interest rates!’ every time the subject crops up is no solution. Considering the several opportunities many Ugandan firms have had access to concessional lending, and still end up in distress, interest rates cannot be the sole reason for high overheads and business failures. Sometimes it is just a simple question about good management.

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