Not even the harsh economic environment in 2012 could bar some banks to post good results. Two new commercial banks joined the already saturated sector in 2012, bringing the total number of commercial banks to 27. Another Nigerian bank has already shown interest in the country’s competitive market. This is a sector that needs more players as the cost of banking services is prohibitively high. Interest rates on loans have remained above the 22% mark even for some of the less risky investments like education, trade and real estate.
While some banks were busy making abnormal profits, others were making losses.
However, all banks had their expenditure rising through the roof. This affected their profitability. Many others suffered with bad debts as borrowers failed to pay. Although interest on loans and advances remained cash cow for most banks followed by investment in securities, fees and commission on incomes like utility bills and school fees continued to rise. The latter segment has been invaded by telecommunication companies whose penetration out matches that of banks.
The banking market dynamics are changing fast. New banks are making more money from interest on deposits and placements, interest on investment in securities and fees and commission income. The reason for this is simple. They are less risky. Bank of India, for example, earned 65.5% from interest on investment securities; 31.6% from interest on deposit and placements and 0.8% from fees and commissions. Interest from loans and advances was just 1.8% of the total bank’s revenue. This implies that the bank did not lend a lot of money to business people to facilitate trade. Many new foreign banks, which cheaper capital, are finding it easier to invest in securities and deposits with other financial institutions as a source of income. This kind of business is cheaper and presents low risk.
Standard chartered made a net profit of Ugx. 144 billion, representing a 72% increase over a one year period. This is attributed to high income from trading securities that increased from 4 billion in 2011 to Ugx. 43 billion in 2012. The bank also reported zero bad debts in 2012, compared to Ugx. 17million in 2011, although the bank’s non-performing loans increased to Ugx. 10.3 billion in 2012 compared to Ugx. 5.5 billion in 2011. This represents a non-performing assets (NPAs) ratio of 1% in 2012, which is far below the industry average of 7%.
The penetration of the banking in Uganda is very low compared to telephone usage. The total number of bank account holders is said to be below six million. Even then, these either hold multiple bank accounts or keep changing accounts depending on promotions of different banks or their interest rates at the time. Many business people operate accounts in different banks because they need to access credit from each of the banks. Before the initiation of credit reference bureau, this practice was extensive.
Traditional banks continue to dominate the sector. Stanbic bank, Standard Chartered and Citi are reaping big. Based on our analysis of the recently released results, there seem to be three categories of banks – A, B and C. The A category is of top performers, B for average and C for worst.
The outstanding performers
Dr. James Mwangi, group CEO equity bank, and David Ansell , board chairman equity bank did a good job. There was 286% growth in profitability from Ugx. 544 million to Ugx 2,102 million. They also made a 16% growth in total assets from Ugx 262 bn to Ugx 305 billion. The bank realized 20% increment in loan and advances to customers from Ugx 164bn to Ugx 197 bn. Customer numbers increased from 522,000 to 5621,000 in 2012. These are exceptional numbers.
Bank of India.
This new entrant posted net profit after tax of Ugx 897 million. The bank boasts of total asset worth Ugx 37 billion far better that some banks who have been around for a long time. As discussed above, BoI Uganda Ltd made a lot of money from investments in securities to a tune of Ugx. 2.5 billion and another Ugx. 1.2 billion from interest on deposit and placements. This is an indication that the sector, contrary to critics, has opportunities to be exploited.
Experts believe the bank’s strategy is to be a lender to banks and other financial institutions, as well as participate aggressively in the securities market. This not only has low operating expenses is also low risk. The bank’s high operating costs are attributed to the usually high costs associated with new entrants. Bank of India Uganda Ltd is the only bank to have made significant profits in the Ugandan market in the first year of operation. The bank is highly capitalized thanks to its parent company, Bank of India, which is highly capitalized.
Under the guidance of Prof. John Ddumba Ssentamu, Managing Director Fabian Kasi, and the no-nonsense Dr. Simon Kagugube, the bank is among the top in the country. Ranked number six, the bank’s profit after tax increased by 14.5% from Ugx. 47.9 bn in 2011 to Ugx. 54.9 bn in 2012. Total assets grew by 18.9% from Ugx.944 bn to Ugx 1.122 trillion. This is the only bank owned by indigenous Ugandans competing at this level in the sector.
The bank’s net loans and advances went up by 18.9% from Ugx 515.5 billion to Ugx 55 billion. Deposit rose by 1.9% from Ugx 694.3 billion to Ugx 818.5 billion in 2011. Expenditure grew marginally from Ugx.49.2 bn to Ugx.54.9 bn in 2012, yet the bank invested in automation and changed its core banking application.
Interest on loans and advances, interest on investment securities and fees and commission income formed largest part of the bank’s revenue. Interest on loans and advances contributed Ugx 149bn up from Ugx.123 bn in 2011. Incomes from fees and commission increased from Ugx.33b to Ugx.44 b in 2012. The bank fetched Ugx.23bn from interest on investment securities in 2012 up from Ugx. 18bn in 2011.
Kenya Commercial Bank (KCB)
Carried their 2011 track record. Profit after tax increased from Ugx. 9bn in 2011. The bank’s total assets increased from Ugx. 300bn to Ugx. 335 bn. Customer deposits grew from Ugx.217bn to Ugx.250bn, an indication of increased customer trust in the bank. Fees and commission income, loans and advances to customers, investment generated a total of Ugx. 218 billion. The bank’s outstanding performance is attributed to its regional presence which provides flexibility as well as economies of scale. The bank was one of the first banks to open up a branch in South Sudan. This has made it a first priority for all traders in the region with businesses in South Sudan.
However, the bank’s top challenge is the bad debts. The bank wrote off bad debts worth Ugx. 189 million in 2o11. This figure increased to Ugx. 2.1 billion in 2012. Operating expenses also increased from Ugx. 25bn to hit Ugx.31bn in 2012.
Diamond Trust Bank
Shareholders and customers have all reasons to smile. The banks’ total assets increased from Ugx. 396 bn in 2011 to reach Ugx. 628 bn in 2012. Customer deposits increased from Ugx. 327bn to Ugx. 529 bn an indication of improved customer trust.
Net profit increased from Ugx. 9bn in 2011 to reach Ugx. 14 bn in 2012. However expenditure increased by Ugx. 20b from Ugx.39 bn in 2011 to Ugx.59bn in 2012. The bank’s income came mainly from loans and advances, fees and commission income. Interest on loans and advances increased from Ugx. 32bn to Ugx.52 bn in 2012. Fees and commission income increased from Ugx. 9bn to hit Ugx. 12bn last year. Many banks are looking at increasing their revenues from fees and commission income from transaction processing. Although this is profitable, it makes the cost of banking expensive and pushes most people out of the mainstream banking.
The increasing uptake of mobile money justifies this argument. Over 70% of MTN U’s 7.7 million subscribers are said to be mobile money customers. This figure dwarfs the number of people with bank accounts yet banking has been in Uganda since the 1940s. Most people find the cost of operating a bank account too expensive and are looking at low cost alternatives like Mobile Money. That is why, many mobile money users prefer not to withdraw their mobile money balances. They are leaving the money on their mobile accounts as savings.
The bank has won several awards for bank of year for a reason. The bank’s total assets increased by 21.47% to Ugx 1.168 billion in 2012 up from Ugx.962 bn 1n 2011. Profit after tax increased by 14.45% to Ugx 80.35 bn ,in 2012 , from Ugx 66 bn in 2011.
Customer deposits increased by 22.90% to Ugx 841.5bn in 2012 from Ugx. 684 bn ,in 2012. Bank expenditure increased slightly from Ugx.41 bn ,to Ugx.49 bn, in 2012.
The Bank’s income came from loans and advances fetching Ugx.587 bn down from Ugx.524 bn in 2011. However, interest on securities and net fee and commission on income declined compared with 2011. Investment in government securities fetched Ugx. 144 bn in 2012 compared to Ugx. 165 bn in 2011. While net income on fee and commission income declined from Ugx.22bn in 2012 compared to Ugx. 26bn collected in 2011.
The bank boasts of twenty seven branches as of December 31st 2012 and works towards increasing them to 40 by end of this year. Crane bank is considered the most aggressive bank on the market. The bank is known to provide fast loans with the lowest processing lead times. The bank is a first choice by most kikuubo businessmen and top entrepreneurs alike for its responsiveness to customer needs and fast loan processing times.
In 2012, the banking industry saw the collapse of another local bank that had been under a microscope from the industry’s regulator, Bank of Uganda. The National Bank of Commerce, which is rumoured to have collapsed due to misunderstandings between its shareholders, is said to have been ‘acquired’ by Crane bank. It was reported that all the bank’s assets and liabilities, including client deposits and loans were transferred to the same bank. The post consolidation effect, as well as, the cost of the transaction are not yet in the public domain. The full impact of this transaction will be clear in the bank’s annual report of 2013.
Standard Chartered Bank
Ranked number two in Uganda, the bank’s total assets grew from Ugx 1.95 bn in 2011 to Ugx.2,465 bn in 2012. Profit after tax increased from Ugx.98 bn to reach Ugx.132 bn in 2012. However, the bank’s expenditure increased by 10bn to reach Ugx.114 bn in 2012.
Headed by Dr. Robin Kibuka (Chairman) and Herman Kasekende as (Managing Director), customer deposits increased from Ugx. 1,384 bn in 2011 to Ugx. 1,03 bn in 2012. Financial results audited by KPMG reveal the bank loans and advances fetched Ugx 208 bn up from Ugx. 163 billion in 2011. Income from marketable securities increased from Ugx. 4 billion to Ugx.43 bn in 2012. Interest from deposits increased from uGX. 16b in 2011 to Ugx. 38 bn in 2012. The bank remains a leader in the SMEs loan segment and made a lot of money from loads and advances due to this. The bank’s innovative product offering and aggressive marketing are some of the reasons for its high profitability.
Tropical Bank, which saw their deposits wiped out at the height of Libyan revolution, posted good results in 2012. The bank’s total assets grew from Ugx.192 billion to Ugx.215 billion last year. The bank with nine braches show customer deposits growing from Ugx.64 bn to Ugx. 114 bn in 2012. The bank realized net profit of Ugx.1.6 bn recovering from loss of Ugx. 624 million in thprevous financial year.
Under the wise leadership of chairman Gerald Ssendawula and managing director Osama Ram Serrag, the bank cash cow include interest on loans and advances growing from Ugx. 16bn in 2011 to Ugx.23 bn in 2012. Other sources of income are fees and commission and investment in securities.
Tropical bank is considered one of the best banks in providing long-term financing at favorable terms. The bank operates a niche market, and is a first choice of most Muslim businessmen. Insider information reveals that most people prefer the bank for its personalized services and the accessibility of the CEO.
ABC Capital Bank
The audited financial report by Ernst and Young reveal Chairman Augustine Kasozi and CEO Mahendra Singh Rawat did some good work. Profit after tax increased from Ugx.455million in 2011 to reach Ugx. 1.1 bn in 2012. Total assets for bank with only one branch grew from Ugx. 18bn to Ugx. 30bn in 2012. Customer deposits grew marginally from Ugx. 5bn to Ugx. 9.5bn. The bank’s income came mainly from interest on deposits and placements from Ugx.444 million to Ugx.1.3 bn and interest on loans and advances grew from Ugx. 1.6bn to Ugx. 3.4 bn in 2012. The bank registered the least total expenditure of Ugx. 2.4bn in 2011 to Ugx.3.7bn in 2012.
Bank of Africa
Financial statements audited by Deloitte and Torche reveal that the banks total assets increased from Ugx. 431 bn in 2011 to Ugx. 446 bn in 2012. The bank’s net profit grew from Ugx.6.2 b to Ugx.9.7 bn in 2012. However, profits were affected by high expenditure which increased from Ugx.49bn to Ugx.68 bn. Headed by Edigold Monday, BOA realized more income from interest on loans and advance growing from Ugx. 33bn in 2011 to Ugx. 49bn in last year. Fees and commission income grew from Ugx. 11.4bn to Ugx. 15.7 bn in 2012 thanks to fees like utility bills. However, customer deposits declined from Ugx. 278bn in 2011 to Ugx.229 bn last year.
This bank joined the likes of Stanbic bank to celebrate for 2012. Total assets as of 31st December 2012 stood at Ugx. 780 bn up from Ugx.568 bn in 2011. Net profit rose from Ugx.22 bn to reach Ugx.35 bn in 2012. It is the only bank that show decline in expenditure from 35.6 b in 2011 to 35.3 b in 2012. Financial results audited by KPMG reveal customer deposits rose from 316 billion in 2011 to 521 billion in 2012.
The bank generated much more income from interest on marketable/ trading securities, interest on loans and trading on foreign exchange. Income from trading in securities increased from Ugx.16.5bn to Ugx.30 bn in 2012. Trading in foreign exchange generated Ugx.17.6 bn up from Ugx.15.3 bn in 2012.
Citi bank’s slow growth is attributed to its deliberate focus on the high-end clientele and the corporate, especially of the US , European and Asian origin. Although these are big customers, they lead to single exposures and have low profit margins and transaction frequency. We see the bank planning to make an acquisition of another bank to tap into the middle market segment for long term growth.
Bank of Baroda
Financial results audited by Grant Thornton show customer deposits increased by 29.4% in 2012 to Ugx 524 bn from Ugx. 404 bn in 2011. Total assets grew from Ugx. 556 bn in 2011 to reach Ugx.709 bn in 2012. Profit after tax grew marginally from Ugx. 27 bn in 2011 to Ugx.29 bn in 2012. Total expenditure increased from Ugx.40 bn to Ugx 61 bn in 2012. Incomes to the bank came mainly from interest on deposits and placements which fetched 10 billion last year up from Ugx. 4 bn in 2011. Interest on loans and advances grew from Ugx. 42 bn in 2011 to Ugx. 61 bn last year.
Financial results audited by PKF reveal banks total assets grew from Ugx.63 bn to Ugx.135 bn last years. Customer deposits increased from Ugx.39 bn to Ugx.97 bn in 2012. This is commendable performance for bank that opened two years ago with handful of branches. The bank’s expenditure grew from Ugx.7.6 bn in 2011 to Ugx. 16 bn in 2012. Net loss for 2012 was Ugx. 1.7 bn. This follows another loss in 2011 worth Ugx. 2.4 bn. Loans and advances fetched the bank Ugx. 6.8 bn last year up from Ugx. 1.2 bn. While interest on deposits and placements fetched Ugx. 3.7 bn up from Ugx. 390 million in 2011.
The bank’s total assets grew by 13% to hit Ugx. 135.7 bn up from Ugx. 120 bn in 2011. Customer deposits grew by 10% to reach Ugx.112.8 bn in 2012. Profit after tax grew by 166% to Ugx.4.28 bn up from Ugx.1.6 bn in 2011. Total expenditure grew from Ugx. 1.8 bn in 2011 to Ugx. 6.2 bn 2012. Under leadership of Stephen Mukweli, the bank’s income came from interest on loans and advances which fetched 1.4 billion in 2012 while interest on investment securities fetched 2.2 billion up from 763 million in 2011.
Post bank has been undergoing restructuring to reposition the bank. This has included investment in ATMs, online banking and setting up of an SMEs department dedicated to the small and medium sized enterprises. Being a state owned bank, insiders say the bank plans to renegotiate with government to channel most agricultural loans and other government project funding through it so as to increase on its portfolio and transaction processing fees. The bank also plans to lobby for government institutions and schools to operate accounts through it although analysts question the banks ability to handle such monies if they were to be channeled through the bank.
Mercantile credit bank (MCB) managed to record a net profit of Ugx.174 million last having made loss of Ugx. 77 million in 2011. Total assets for the bank grew from Ugx. 17 bn in 2011 to Ugx. 25 bn in 2012. However, customer deposits declined from Ugx. 13 bn to Ug. 12 bn in 2012. The bank fetched Ugx. 14 bn from interest on loans and advances. In 2011 the bank collected Ugx.928 million from loans and advances. The bank wrote off Ugx. 36 bn in bad debts up from Ugx. 13bn in 2011.
The bank has very high operating expenses at Ugx. 2.3 billion in 2012, which is excessively high for such a bank with few branches, no ATM operations and limited ICT budget.
Opportunity Bank. Formerly a microfinance institution, turned into bank last year, realized profit of Ugx 395 million having made loss of Ugx. 152 million in 2011. The bank boasts of more than 100,000 clients. Total assets increased marginally from Ugx. 49 bn to Ugx.54 bn in 2012. On the other hand, customer deposits increased from Ugx.9 bn to Ugx. 11.5 bn in 2012. The bank’s income came from fees and commission income which fetched Ugx two billion up from Ugx 1.5 billion in 2011. Incomes on interest on loans grew to hit 14 billion in 2012 from Ugx.12 billion in 2011.
The bad performers
Financial results audited by PwC reveal the bank had rather bad 2012. Profit after tax declined from ugx. 20bn in 2011 to Ugx.10 bn in 2011. The decline could be attributed to increase in expenditure from Ugx.40bn in 2011 to Ugx. 66 bn in 2012. Total assets increased from Ugx. 435 bn to Ugx. 517 bn in 2012. Customer deposits increased to Ugx. 410 bn up from Ugx332 bn in 2011 thanks to their promotion, Kyabise, in which three lucky customers walked away with brand new car. This promotion helped increase brand visibility and awareness. Incomes for the bank came from investment in securities which fetched Ugx.13 bn in 2012 down from Ugx.11 bn in 2011. Interest on loans and advances fetched Ugx. 48 bn up from Ugx. 39 bn in 2011. On the other hand interest on deposits and placements grew from Ugx. 935 million in 2011 to Ugx. 2 billion in 2012.
Barclays Bank. It is ranked number three after Stanbic bank and Stanchart. Total assets declined from Ugx. 1.02 billion to Ugx. 1.01 billion. Customer deposits declined from Ugx. 905 billion in 2011 to Ugx. 846 billion in 2012. The decline in customer deposits and perhaps customer numbers saw the bank close down number of branches including the Jinja road branch, Kamwokya Kobil Branches operations and many others in a bid to streamline operations and cut operating costs. Profit after tax increased from Ugx.21 bn to Ugx.36bn in 2012, however this is very low considering the bank’s total assets and infrastructure.
Incomes for bank came in form of investment in securities, from Ugx.24 billion in 2011 to Ugx.50 billion last year. Incomes from interest on loans and advances declined from Ugx. 78b to Ugx.73 bn. The bank suffered heavy impairment losses on loans and advances of Ugx.14bn in 2011 declining to Ugx. 9bn last year. The bank wrote off Ugx. 18 bn in 2011 declining by small margin to Ugx. 16bn last year. It is said that when the bank acquired Nile Bank, there were several bad loans in the portfolio and it has never recovered. The high fraud in the loans and advances continue to affect the bank’s performance for the years to come.
Total assets grow from 953 bn to reach one trillion. Customer deposits also increased from 525 bn in 2011 to 591 bn. However expenditure on interest on deposits, borrowings management fees and other expenses increased from 92 bn to 122 bn in 2012. This affected profitability of the bank and thus profit after tax declined from 307 billion to 306 billion in 2012.
The bank realized more incomes from investment in securities, loans and advances and property equipment. Fees and commission income increased from 9nb to 14bn thanks to payments like Dstv, utilities, URA etc. the board, chaired by Sam Kibuuka recommended a dividend of Ugx 37.10 per share.
Late in the year, the bank announced new shareholders which saw it suspend trading on the securities exchange. The new shareholders are Rabo Development B.V, a subsidiary of Rabo bank of Netherlands with 27.54 per cent stake and the Norwegian Investment Fund for Developing Countries (NORFUND) with 27.54 per cent shares from 10.06 per cent shares it held in the bank. Valued at Ugx. 111,923,594,000 the transaction was done in lots of 43,461,797 and 68,461,797 shares, making it the biggest single transaction in the history of the Uganda Stock Exchange. These shares were bought from CDC. The downsizing of shares by Commonwealth Development Corporation (CDC) from 60.02 per cent to the current 15 per cent stake is justified on the basis to reducing exposure of the bank to single shareholding by CDC by introducing more robust, and highly experienced shareholders to boost the bank’s relevance in the region in light of the renewed competition from Kenyan and Nigerian banks that are increasingly looking at the EAC market.
Banks in the red zone
United Bank for Africa (UBA)
For the second year in a row, UBA has continued to post losses. Despite introducing innovative solutions, the bank is said to have one of the highest staff turnover. Since inception, it has changed over five managing directors and their assistants; almost every year sees a new managing director.
Obviously this is not good for a new startup, as banking in Uganda requires good learning curve. Whereas the Kenya operating environment is almost similar to Uganda’s (that is why most Kenyan banks have thrives with Kenyan CEOs), Nigeria’s operating environment is different. This explains the failure of EcoBank and UBA to create an impact in the local market for over three years of operation.
UBA’s net loss after tax was Ugx 5.8 billion in 2012; in 2011 the bank posted a loss of ugx.1.1 billion. On plus side, balance sheet size grew by 15% driven by deposit mobilisation from customers thanks to innovations like the UBA prepaid Visa card.
Total income grew by 13% largely attributable to increase in staff compliment to support growing customer base and 47% increase in interest expense on deposits. Total assets grew from Ugx. 114 bn in 2011 to Ugx.131 bn in 2012. The bank’s income came from interest on loans that fetched Ugx. 9.7 bn up from Ugx.7.2 bn in 2012. Interest on marketable and trading securities fetched Ugx. two billion in 2012 compared to Ugx. 1.3 billion in 2011.
Ecobank, which boasts of ten branches with headquarters in West Africa, choose to publish group results in the local papers as the local results are not that rosy. The Financial Institutions Act requires all banks to publish their annual performance in the national papers before the fifth month of the following year. We were unable to establish Ecobank’s performance of 2012 in Uganda. The bank has experienced challenges operating in the local market, and appears to lack a consistent strategy and market niche. Just like UBA, the bank’s top honcho have been unstable with several changes in the senior positions at the bank on a frequent basis - -a sign of some disorganization. We anticipate the bank will have to recapitalize and focus on investing in securities and inter-bank borrowings so as to turnaround its loss making position attributed to high initial costs and operating expenses.
Cairo International Bank. With only four branches in the country, it is one bank that shows almost no activity in 2012. Total assets declined from Ugx.765 billion in 2011 to Ugx763 in 2012. Customer deposits declined from Ugx.58 billion in 2011 to Ugx.55 billion last year. Profit after tax declined from Ugx.1.8 billion in 2011 to Ugx.993 million last year. The bank was at the centre of the pension scam in 2012, and based on the 2012 results, could have had adverse impact on the bank’s operations.
The share holders of Kenya based bank must be wondering what is happening at their bank. The bank that boAsts of seven branches for second year in the row made losses. Total assets declined from Ugx.847 billion in 2011 to Ugx. 824 billion in 2012. In 2011 net loss was Ugx. 745 million,which increased to Ugx. 6.7 billion in 2012. Customer deposits declined from Ugx. 61 billion in 2011 to Ugx.60 billion last year. Cash and balance with Bank of Uganda declined from 10 billion in 2011 to Ugx. 9 billion last year.