A lower dividend package amid fresh recapitalisation pressures as well as concerns about stock overvaluation on the Ugandan bourse have driven Stanbic Bank’s stock price to a record low. This is despite the lender posting good earnings in 2015, a circumstance that has left investors disgruntled.

The bank slashed its full year dividend from Ush1.66 ($0.049) per share declared in 2014 to Ush0.78 (US cents 0.023) per share for 2015, citing recapitalisation pressures attributed to the industry regulator.

The Bank of Uganda has been forced to create additional capital rules for banks with large balance sheets, in line with the Basel three capital requirements — a set of international banking capital and risk management benchmarks being enforced by central banks.

Stanbic, Standard Chartered and Citibank are among banks that fall under this category. They are required to maintain a tier-one capital ratio of 11.5 per cent, compared with 10.5 per cent held by industry peers, and a total regulatory capital ratio of 15.5 per cent, compared with 14.5 per cent maintained by their peers, according to BoU guidelines.

But dissatisfaction among some investors over the reduced dividend allocation has triggered a sell off on the Stanbic counter in recent trading sessions, leading to new record share price lows of Ush27 (US cents 0.8) and Ush24 (US cents 0.7) per share on April 22 and 25 respectively, compared with Ush29 (US cents 0.9) registered at the end of March, market trading reports show.

Stanbic’s share price remained stable at Ush24 (US cents 0.7) mid last week, reflecting the effects of muted trading activity since the beginning of April, and reports of disgruntled retail investors.

The counter traded 511,049 shares worth Ush12.27 million ($3,634) and held steady at Ush24 ($0.007) on Wednesday while total USE market turnover rose to Ush1.15 billion ($340,577) compared with Ush946.94 million ($280,440) recorded the previous day, equity trading reports showed.

Isaac Mwigo, a stockbroker at Equity Stockbrokers Ltd, said that Stanbic’s financial performance had improved remarkably since 2014 but that the notable growth in profits had not been felt by shareholders was a point of concern.

“Besides, the reasonable decline in operating expenses has not benefited many shareholders and this explains why some investors are opting for more rewarding stocks,” said Mr Mwigo.

Concerns about overvaluation of Ugandan listed banks’ shares held by offshore investors have similarly affected Stanbic’s stock.

Investor scare

“The reduction in dividends per share has scared many retail investors away from the Stanbic counter. Some retail investors are also concerned about the wholesale approach to the bank’s capital injection programme and are in favour of a phased, lower cost strategy,” said Joram Ongura, a stockbroker at SBG Securities Ltd.

A recent research note issued by Crested Capital Ltd projects Stanbic’s share price will hit Ush21 ($0.006) in 12 months’ time, steered by the dividend reduction coupled with a sell or hold recommendation to investors.

“The cut in dividends per share has directly affected many investors but the critical need for additional capital in the business cannot be overlooked. Current initiatives aimed at reducing operational costs related to branches through deeper exploitation of digital platforms like Internet and mobile phone banking plus capitalisation of acquisition expenses linked to the new platform are bound to boost profits significantly in two years’ time,” said Simon Mwebaze, an investment analyst at UAP Financial Services Uganda Ltd.

Mr Mwebaze said investment analysts project Stanbic’s profits to gross Ush200 billion ($59.2 million) by the end of 2017, and are also eager to purchase more shares for as low as Ush20 ($0.0059) because of the bank’s bright long-term prospects.