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Stanbic Uganda’s interest income declines, leaving half-year profits flat

Monday August 13 2018
stanbic

A Stanbic Bank stand during a weeklong exhibition in Kampala to encourage customers to take up insurance. FILE PHOTO | NATION

By BERNARD BUSUULWA

Stanbic Bank Uganda’s profits after tax for the first half of this year have remained flat at Ush96 billion ($25.8 million), compared with Ush95 billion ($25.6 million) posted in the same period in 2017.

The performance has been attributed to weak economic conditions and reduced interest income as the country’s largest lender struggles with cost-cutting measures.

Profit after tax in Quarter One of this year stood at Ush44.5 billion ($11.98 million) and Ush51.5 billion ($13.9 million) in Quarter Two, the bank’s latest financial results show.

The demand for loans and advances, trade finance products, currency trading services and deposit accounts has been low, due to reduced consumer spending, poor government expenditure and muted regional exports experienced since last year. This means banks have earned less in interest income from loans and bank charges.

SBU’s net interest income dropped to Ush169 billion ($45.5 million) by close of June this year, from Ush178 billion ($47.9 million) as at the end of June 2017.

Non-interest income rose to Ush152 billion ($40.9 million) from Ush136 billion ($36.6 million).

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Operating costs increased to Ush177 billion ($47.6 million) from Ush171 billion ($46 million) during the period under review, a trend partly attributed to one-off costs incurred on selected branch and Automated Teller Machine closures.

Total loans and advances grew to Ush2.3 trillion ($619 million) from Ush2 trillion ($538 million). Total customer deposits rose to Ush3.8 trillion ($1 billion, from Ush3.2 trillion ($861 million).

The bank’s cost-to-income ratio rose slightly to 51.9 per cent from 51.4 per cent during the period under review.

Its credit default ratio fell to 0.9 per cent from 1.4 per cent, amid gains from discounted lending rates enjoyed by local borrowers and recovery of outstanding loan balances from a few, large distressed clients.

The lender’s return on assets declined by 0.4 per cent to 3.7 per cent. Its total assets expanded by 7.4 per cent to Ush5.1 trillion ($1.4 billion).

“The growth in our bottom line reflects what the industry is facing. Though economic activity improved in the first two quarters of 2018, the lag effect of economic recovery usually takes up to six months before it is fully felt in the banking industry. Non-performing loans are steadily declining as a direct result of falling lending rates,” said Stanbic’s managing director, Patrick Mweheire.

Whereas the bank made savings of Ush15 billion ($4 million) by scrapping certain roles, reducing paper usage and branch restructuring, its cost-cutting strategy is yet to register tangible results.

“We will focus more on the quality rather than the quantity of cost centres. For example, we shall be spending less on training items like e-learning tools for staff and put more money into improving digital transaction channels like Internet banking to ease pressure on branches and minimise transaction volumes in banking halls, eventually yielding lower operating costs,” said chief finance officer Sam Mwogeza.

“The banking industry is not isolated from the wider economy and it is also feeling the effects of low economic activity. While players in infrastructure projects are enjoying relatively strong growth momentum, those in the trade and commerce sector as well as the telecommunications industry, particularly mobile money dealers are struggling and contributing greatly to NPLs in the banking industry,” said Charles Katongole, the executive principal in charge of financial markets and Treasury operations at Standard Chartered Bank Uganda.

Lending rate

Stanbic Bank Uganda’s prime lending rate was slashed from 18 per cent to 17 per cent in the first six months of 2018.

Though the lender’s share price rose to a record high of Ush33 ($0.008) at the Uganda Securities Exchange on Wednesday and Thursday last week, market watchers are divided over the trigger factor.

“Consumers are not spending, while businesses are postponing expansion plans and are reluctant to explore new markets. This implies bad times for commercial banks willing to lend more to their customers,” said investment manager at Sanlam Investments Uganda Ltd Mubbale Kabandamawa-Mugalya.

“Cost-cutting measures are possibly informed by the realisation that the market has hit its growth peak on many indicators and future earnings can only be protected by current restructuring measures.”

Mr Kabandamawa-Mugalya added: “Stanbic Uganda’s record high share price of Ush33 ($0.008) is possibly a result of ordinary movements in demand and supply and not necessarily optimism about its immediate future earnings.”

But according to a retail investor Andrew Muhimbise, Stanbic share price is a victim of the company’s poor dividend policies.

“Back in the day, the share price used to average Ush37 ($0.009), with lower dividends declared, but is now trading at less than Ush33 ($0.008) on average in spite of increased dividends paid per share,” said Mr Muhimbise.

“The increase in share price is possibly as a result of a book-building deal by some stockbrokers who were confronted by sellers seeking a higher price for their SBU shares, compared with fellow investors.”

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