Kampala- Dfcu’s nonperforming loans (NPL) in 2015 rose to Shs71b, on account of some customers finding it hard to pay back borrowed money.
In a financial statement released yesterday, the bank’s NPLs rose by 49 per cent from Shs42b in 2014.
An NPL is the sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days.
“The difficult operating environment in the country is one of largest contributors to the nonperforming loans. One of our largest clients is in the tea sector and two years ago they were exposed to a fall in tea prices. We chose to restructure that loan and that explains why it is still on our books,” Mr Juma Kisaame, the managing director dfcu Bank, told Daily Monitor in a telephone interview yesterday.
The operating environment for commercial banks was affected by the weak Shilling which resulted in Bank of Uganda raising the benchmark lending rate to constrain inflationary pressures.
As a result, commercial banks raised lending rates too. As interest rates rose, dfcu Bank’s interest income also increased by 15 per cent to Shs139b in 2015 from Shs120b in 2014.
However, this benefit was almost offset by the rise in interest expenses on customer deposits, which according to Kisaame, was because “we had to pay a little more.”
Expenses on interest to customers rose by 26 per cent to Shs47b in 2015. Additionally, the bank incurred operating expenses also expanded by 15 per cent to Shs89.5b and resulted in a decline in profitability.
“One of our biggest challenges is that operating costs rose in the year. We have been implementing some changes in business operations at our new head office that will lead to more efficient operations. We are also in the process of upgrading our IT platform,” Kisaame added.
The result was an 11 per cent fall in net profit for the bank from Shs42b in 2014 to Shs37b in 2015.
Dfcu Bank is the largest subsidiary that contributes over 98 per cent of income for dfcu, a listed entity on the Uganda Securities Exchange.
“The performance of the bank improved in the second half, which explains why the loan book grew during the year,” said Ms Salima Nakiboneka, an analyst of Fixed Income and Equities at Crested Capital.