Currently, there are 23 licensed commercial banks in Uganda, with over 400 bank branches. The total commercial bank assets are estimated at Shs 7.58 trillion and according to last year’s bank financial results, the country is headed for rosier economic growth prospects as Walter Wafula reports.
The increasing growth and profitability of Uganda’s commercial banks is a clear testimony that Uganda’s economy is on the path to higher growth based on their financial support, analysts have said.

The good returns recorded by the banks, despite the preceding two challenging years for the business community, are also proof that the central bank’s affirmation about the strength of the domestic financial sector was not a farfetched defense.

At the height of the financial crisis in 2008, the governor Bank of Uganda, Prof. Emmanuel Tumusiime-Mutebile, said Uganda’s banking industry was “safe and sound” and would not be directly hit by the financial crisis.
Commenting on the general financial position of the banks, Mr Samuel Njirwa – the general manager of Dyer and Blair, a Kampala-based investment bank, said; “It was a good performance. Any double digit return was good for any company considering how the performance of companies in the region was last year.”

The latest financial results of Stanbic Bank Uganda, Bank of Baroda, DFCU Bank, Centenary Bank and Crane Bank indicated that their profitability went up by large margins compared to their counterparts in Kenya.

DFCU Bank has so far reported the strongest double digit growth in profit. The bank’s profit after tax grew by 47 per cent from Shs13.1 billion to Shs19.2 billion last year.

The growth was realised on the back of increased interest income, branch expansion and customer deposits. Crane Bank boasted of having earned “record” profits while Stanbic Bank came close to earning what will be an extraordinary Shs100 billion net profit. Stanbic, which is the market leader, declared Shs95 billion profit after tax, from its commercial activities compared to about Shs79 billion earned the previous year.

Mr Philip Odera, the bank’s managing director, attributed the strong performance to increased net interest income which was earned on both personal and business loans. The bank’s net interest grew to about Shs171 billion in 2009 from Shs134 billion in the year before.

Good growth
But overall, the market leader’s full year profit grew by 21 per cent compared to the 6 per cent, which was recorded by its’ associate in Kenya; CFC Stanbic Bank.

Stanbic Uganda also declared a final dividend of about Shs8 per share while CFC did not. The two banks are subsidiaries of the Standard Bank Group in South Africa.

Crane Bank, which is privately owned, also released its financials indicating a 24 per cent growth in profit after tax, from Shs26 billion in 2008 to Shs32 billion last year.

While releasing the audited financial results, Mr Kalan attributed the bank’s “excellent results” to the expansion of the bank’s branch network and continued support from customers. The bank has 11 branches and is poised to increase them to 15 branches this year.

Ms Anita Matovu, an analyst at MBEA Brokerage Services, said the performance was a proof of the modest impact of the global financial crisis on the Ugandan economy compared to what the industrialised economies faced during the disaster and subsequently the recession. “What we experienced were the secondary effects which included lessened demand for our exports as well as reduced FDI –Foreign Direct Investment,” she said.

During the year, earnings from fish, coffee, exports and remittances fell by significant margins and yet they are the biggest foreign exchange earners of the economy.

Analysing the benefits of the banks’ profitability, Mr Njirwa said: “it means that there will be more money for development and investment.”
Commercial banks lend money for both personal and business development through products like; mortgage financing, business, education, agriculture and salary loans. In 2009, Stanbic Bank lent to its customers up-to Shs927 billion from Shs730 billion the previous year.

Globally, international banks were cutting back on their lending as they watch the world economy with a keen eye to avoid falling into death traps. On the contrary, Ugandan banks continued to lend albeit cautiously too. Lending is expected to shrink to 15 per cent in 2009, from 57 per cent, according to the latest research on the banking industry by African Alliance Uganda.

But this year, Mr Njirwa foresees increased lending in the economy given the falling interest rates on loans given by commercial banks. Commercial bank lending rates have fallen to as low as 15 per cent per annum today. Prior to last year, interest rates on loans ranged from 19 to 35 per cent. The rates are among the highest lending rates in the world. But lending rates started falling after the Bank of Uganda stepped in with lower bank rates during the year in a move to boost lending to the private sector.

Rates have also fallen on the back of increased competition in the banking industry following the entry of new players like Ecobank, Equity and Kenya Commercial Bank in the last three years.

For instance, in the race for clients, banks like Standard Chartered Bank have lowered their rates by a significant six per cent compared to the central bank’s three per cent and are also buying up loans held by borrowers in pursuit of clients from other banks.

Increased lending by banks to the private sector is expected to further boost Uganda’s real growth domestic product growth pushing it back into the seven per cent range starting next year. While the central bank believes the economy will grow by about 6.5 per cent in 2010, the International Monetary Fund has predicted that Uganda will not grow above 6 per cent.

Ms Martine Guerguil, the IMF mission chief said Uganda will grow at a slower pace because of the government slowdown on public expenditure between June and September, which cut back national demand for goods and services at the time.
The continued strong performance has also encouraged local banks like Crane Bank to consider opening branches in other East African countries like Rwanda and South Sudan to counter competition from Kenyan banks. Mr Kalan said the bank is set to open new branches in Rwanda and South Sudan in a bid to become regional.
“We are opening five branches out of Uganda in the second quarter (within the next three months). The process has already started,” he told journalists while releasing the bank’s 2009 financial results in Kampala last month. The bank currently has 11 branches countrywide.

If Crane Bank pulls off its dream, it will be the first local bank to follow in the footsteps of Kenya Commercial Bank (KCB), Fina Bank and Equity Bank Limited, which have positioned themselves in the some of these markets to tap into the booming commodity and merchandise trade in the East African region.
However, Mr Kalan said; “We are not competing against any bank. We are doing something that we have always wanted to do.” Kenya Commercial Bank and Equity Bank have the widest distribution networks around East Africa and in South Sudan.

Besides Crane Bank, Bank of Baroda and DFCU Bank have also indicated that they are working towards opening branches in other East African nations. Mr M.D Mallya, the global chairman and managing director of Bank of Baroda International, told this newspaper that the bank plans to expand to Rwanda to boost its growth and performance in the region.

With the integration of the five East African partner states including; Rwanda, Burundi and Tanzania, and the harmonisation of economic policies, the road path to their dreams seems to have been cleared. Only capital, visions and missions can limit the banks’ ambitions.

Uganda’s banking sector has remained largely profitable and solvent with average capital averaging 22 per cent of risk weighted assets as of the third quarter of 2009. It is testament to the prudent macroeconomic policies and the strengthening of banking supervision that the bank has put in place, according to the central bank.


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