The banking industry has come out of the first half of 2022 stronger compared to the same period in the previous year.
High inflation rates have seen governments cut their growth prospects, while the International Monetary Fund-IMF and the World Bank have also revised global growth outlooks downwards.
Some of the strongest economies, like the United States, have even contracted over the last two quarters, which qualifies them to be declared as going into recessions.
The sharp rise in the international prices of essential commodities like fuel and food has seen the cost of living sharply rise, yet household and private sector incomes were generally just starting to recover.
The economic conditions affected this revival and as personal savings were reduced and some banks realized a return to high non-performing loan levels.
In Uganda, the economy further faced challenges from failed harvest which resulted in even higher food prices affecting people’s savings and investments.
However, commercial banks which have so far released their half-year results, show that their profit margin increased though the rate of growth was affected by the economic shocks.
DFCU Ltd, which made a profit of 38.8 billion shillings in the six months ended June 2021, this time round registered a profit after tax of 18.77 billion shillings, despite realizing higher revenues.
This fall in profits was largely caused by the huge “credit loss expense on financial assets” which basically arises from the failure of borrowers to pay back.
This loss grew from 36.7 billion in the first half of 2021 to 75 billion shillings in the first of 2022.
This not-so-good performance is likely to see shareholders of DFCU wait longer before getting dividends as the Bank of Uganda advisory to banks on paying dividends still stands.
“While the Directors are cautiously optimistic of an economic recovery, the recent economic trends point to a possible prolonged delay in the recovery. In order to prepare the Company for any adverse effects resulting from economic shocks, the Board of Directors are not proposing payment of dividends for the year ended 31st December 2021,” the management said last month at their annual general meeting.
They however said that this position will be closely monitored, and Shareholders advised on any developments.
Due to uncertainties in the world and domestic economies caused by the Covid-19 pandemic, the Bank of Uganda had directed all Supervised Financial Institutions to defer the payment of all discretionary payments including dividends until further notice or until explicit authorization was given by the central bank.
In June, BOU allowed the bank to pay Dividends for the Financial year ended 31 December 2020 and 31 December 2021 subject to staggering the payments over three months period effective July 2022.
“The dividend for the Financial Year 2021 will be paid latest by 21st November 2022 at the rate of Uganda Shillings 10.00 per share,” the company says in a notice to shareholders.
Stanbic Bank, the other bank listed on the Uganda Securities Exchange saw profit after tax grow at a modest 4.7 percent to 164 billion shillings, which management called “acceptable to shareholders”.
“Effectively navigating these unprecedented times has been a challenge for various sectors in the economy, including the banking sector. In this fast evolving and unpredictable environment, we resolved to focus on delivering products and solutions that are attuned to these extraordinary times,” said Anne Juuko, the Chief Executive at Stanbic Bank.
There was also a growth of 8.8 percent in customer deposits to 6.2 trillion shillings, while loans and advances to customers grew slightly from 3.7 trillion to 3.8 trillion shillings.
The rate of credit growth has been affected across all banks by the cautious approach to lending by the banks, due to the payment risk abetted by the underperformance of the private sector.
Following the sustained rise in inflation since the beginning of this year, BOU has been raising the Central Bank more regularly to 9.0 percent in August from 6.5 percent in February.
The commercial banks have also responded by announcing rises in interest rates, the latest being the Bank of Africa.
“In line with prevailing market conditions, we have made changes to our Uganda shilling and US Dollar base lending rate to 20 percent and 11 percent respectively. We have also made changes to our products and services tariff in a bid to serve you better.
All these changes will be effective from 18 September 2022 and will apply to both existing and new customers,” said Bank of Africa in their notice to customers Friday.
The banks say the economic situation and the actions by the BOU are necessitating the increment in the interest rates by the banks.
“We are indeed in a challenging operating environment, and these are tough times for our customers. Over the past 3 years, the Central Bank has reduced the Central Bank Rate, and we have consistently passed this benefit to our customers. The CBR has now increased by 2 percent and accordingly, this will reflect in our Prime Lending Rate,” says Juuko, Stanbic’s CEO.
In the regional, regional banks KCB and Equity performed a little better in profitability that the Ugandan banks, with the KCB group announcing a 28.4 percent growth in profit after tax to 19.6 billion Kenya shillings (622 billion Ugandan shillings).
Group CEO Paul Russo says the good performance was mainly because of the contribution of regional subsidiaries. KCB has operations in Kenya, Uganda, Rwanda, South Sudan, Tanzania, and Burundi.
“We delivered solid results, supported by our diversified business model as we sharpened our focus on customer obsession and execution to better support our customers in a rather difficult operating environment. Despite some uncertainties and headwinds, we saw sustained signs of recovery across the region, allowing us to deliver stronger shareholder value,” said Russo.
Another regional group, Equity posted a 36 percent growth in profits to 24.4 billion Kenya shillings (774 billion Uganda shillings) in the first half of 2022, with the Group CEO James Mwangi attributing it to the digitization success with now 99 percent of customers operating outside the banking hall.
“Covid-19 acted as a tailwind to our efforts of digitizing our business,” said Dr. James Mwangi, in his statement on the banks performance.
“The business transformation has supported recovery and built resilience in the business. Going online and virtual through digitization has brought ease and convenience to our customers resulting in increased uptake of our products and growth of the business”, added Dr. Mwangi.
-URN
