Mixed fortunes for Uganda banks in first half of 2017

Thursday August 24 2017

Stanbic Bank profits dropped 11pc as interest

Stanbic Bank profits dropped 11pc as interest charges fell, while DFCU which acquired Crane Bank assets and liabilities, saw its profits rise. FOTOSEARCH 

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Stanbic Bank Uganda’s profits dropped by 11 per cent in the first half of 2017, compared with the same period last year, on the back of falling interest margins and tough economic conditions.

DFCU, which acquired Crane Bank assets and liabilities early in the year saw its profit after tax rise to Ush114 billion ($31.2 million) at the close of June 2017, from Ush23 billion ($6 million) at the end of June 2016.

A decline in the Central Bank Rate from 15 per cent to 10 per cent in the period under review and reduced yields from Treasury bills and bonds partly contributed to the drop in profits.

The CBR is a benchmark policy rate that determines the cost of funds mobilised by commercial banks.

Stanbic Bank Uganda’s prime lending rate dropped from 24 per cent to 19 per cent to reflect the CBR.

Net interest margins fell to 8.6 per cent between January and June 2017, from an average of 9.4 per cent in the first six months of 2016.

Subsequently, the bank’s interest income shrank by about Ush15 billion ($4 million). Yields earned from the 91-day Treasury bills declined to 10.7 per cent from 15.2 per cent.

Stanbic Bank’s net interest income dropped by three per cent to Ush178 billion ($48.8 million) at the end of June while non-interest income fell by 10 per cent to Ush136 billion ($37.3 million).

Total income dropped by six per cent to Ush314 billion ($86 million). Its return on assets declined to 4.1 per cent from 4.8 per cent during the period under review.

Increased loans

The bank’s loans and advances rose by eight per cent to Ush2 trillion ($548.5 million) while customer deposits grew by 12 per cent to Ush3.2 trillion ($877.6 million), according to the bank’s latest financial results.

“It is not surprising that bad loans in the industry have risen to Ush1.6 trillion ($438.8 million) out of a total credit portfolio of Ush10 trillion ($2.7 billion).

This has affected the lending appetite among banks but the worst is behind us,” said Stanbic Bank Uganda managing director Patrick Mweheire.

The bank’s share price at the Uganda Securities Exchange rose slightly to Ush27.50 ($0.0075) on last week Tuesday after the announcement of its half-year results but fell to Ush27.25 ($0.0074) on Wednesday. No interim dividend was declared for 2017.


On the other hand, DFCU Ltd financial performance for the first six months of 2017 was boosted by the acquisition of some Crane Bank assets and liabilities in a deal that was finalised in January this year.

The bank’s latest financial results show total income rose to Ush255 billion ($69.9 million) as at the end of June 2017, from Ush83.8 billion ($22.9 million) in June 2016.

Total assets rose to Ush3.1 trillion ($850 million) from Ush1.6 trillion ($438.8 million) during this period. Customer deposits grew to Ush1.84 trillion ($504.6 million) from Ush982 billion ($269 million).

The lender’s capital base also increased to Ush500 billion ($137 million) after the acquisition deal from Ush200 billion ($54.9 million).

“We did due diligence on Crane Bank and carried out valuation of its assets and liabilities; we are ready to absorb any shocks that may arise from this acquisition,” said DFCU Bank managing director Juma Kisaame.

DFCU Bank is a sole subsidiary of DFCU Ltd. DFCU Ltd’s share price on the USE remained unchanged at Ush758 ($0.21) for two straight sessions after the announcement of half-year results.

The company did not declare an interim dividend for 2017 but it plans to allocate more than 200 million shares in a rights issue.

The cash will be used to repay a $50 million shareholder loan owed to Arise BV, a Dutch holding company that owns 55 per cent of the firm. The rights issue is to be concluded in October but details on the transaction value, offer price and allotment ratio were not available by press time.

Simon Mwebaze, the general manager at UAP-Old Mutual Financial Services Uganda, a fund management and stock brokerage firm, said the DFCU’s share price is unlikely to gain much in coming weeks.

“Investors will be focussing on the pending rights issue and possible risks to its balance sheet caused by Crane Bank’s doubtful assets that were exposed by the Bank of Uganda forensic audit report,” said Mr Mwebaze.