‘Banking sector still has opportunities for growth’

In 2012, NC Bank opened shop in Uganda when the sector was facing a high-interest environment. This cast doubt on the performance of the sector. How has the period from 2012 to 2015 been?
When we launched the bank, we emphasised that our vision is to establish a long-term mutually beneficial relationship with our customers. This means irrespective of the economic cycle, our intention is to work with our customers who we consider as partners in a journey towards fulfilling their personal and business aspirations.
Our customers have supported us in this strategy. The bank opened its doors on June 1, 2012 and broke even in 2013, its first full year of operations by returning a profit before tax of Shs82m which then grew to Shs505m in 2014 and Shs1.3b in 2015.
Our parent company NIC Bank Kenya, has invested Shs40b in the capital and supported the roll out of technology-based solutions and other products which have made all these achievements possible.

The banking sector then was said to be saturated with many players. What is your take on this assertion?
It depends on one’s understanding of the role of banks. I believe the opportunities are largely untapped. The fact that there are less than six million active bank accounts in a population of close to 40 million, whilst mobile money users have grown to 18.5 million in just seven years shows that traditional banking activities may appear “saturated” only because they are being overtaken by technology and alternative banking solutions.
As long as one views banking in a non-traditional brick and mortar manner but as a solutions-oriented service industry, then the opportunities are limitless as emerging technologies have aptly demonstrated.

The accusation for banks was that there is a focus on corporates yet SME’s yearning for finance are somewhat excluded. Have you tapped into this market? If so, how?
The primary responsibility for banks is to depositors who have entrusted the banks with their hard-earned cash. Lending activity is secondary and based on a lot of due diligence that ensures a borrower has the demonstrated ability to honour all its obligations in a loan agreement both in terms of repayment and adherence to the terms and conditions that give the lender comfort to provide the financing.
We have many SME customers who meet these requirements and we provided them with the required financing. Where a borrower is unable to meet the requirements, then we advise them on the steps they need to take to enhance their ability to attract credit.

In 2015, the bank posted a net profit of Shs1.08b from Shs670m in 2014 on account of a rise in income. What is the main driver for this income growth at a time when borrowers are said to be slowing down on borrowing?
The bank’s total assets increased by 28.9 per cent to Shs202b. Interest income grew 40 per cent to Shs21.5b. Foreign Exchange income grew 170 per cent to Shs1.16b whilst fees and commissions grew by 42 per cent to Shs1.4b. We attribute this performance to an increase in customer volumes and transactions particularly in the latter half of 2015 when the bank expanded its target market and channels including the opening of our second branch at the Village Mall in Bugolobi. The growth in interest income was driven both by a 20 per cent growth in lending as well as investments in liquid assets such as government securities and placements.

When you were launching in the market, interest rates were rising. In 2015, the same happened and the projection is that the sector would experience a rise in non-performing loans. The bank experienced a rise in NPL’s to Shs9.9b from Shs4.6b in 2014. How do you mitigate these to avoid them being written off?

It is good you have brought up this point so that we recognise that interest rates operate in a cycle which may pose challenges to businesses that do not adequately prepare themselves. It is the same manner in which businesses are caught by surprise when the exchange rate suddenly moves against them. These movements can also work in favour of businesses as we have seen with the recent drop in the CBR which should prompt banks to lower lending rates.
Few customers experienced a strain in their cash flows towards the end of last year due to the economic environment. Most of them resolved their challenges early this year. Our approach to lending is based on continuous engagement with our customers. A key principle we apply is to ensure that a borrower has adequate cash flows to meet their obligations and sufficient security to meet unexpected business challenges. This approach has allowed the bank to grow its lending in a sustainable manner over the past three and a half years.

Customer deposits are also on the rise for the bank, meaning there is some presence. How were you able to grow the customer deposits during the year?
Our customer deposits grew 30 per cent year-on-year to Shs60b. Growth was driven by our expanded channels and growth in the customer base. The deposit levels are still low as we are cautious to pay interest on deposits only at affordable rates that allow the bank to invest the funds at a small profit in relatively risk-free assets such as government securities. This is an important principle in banking as it means the bank is not obliged to lend out the customer deposits to meet interest payments but only does so when it is comfortable with the borrower’s ability to pay. That is why the rates paid on deposits are often below the prevailing Treasury bill rates. We also have access to medium term lines of credit so that there is no funding mismatch on our medium-term loans. This funding structure has allowed the bank to hold relatively high levels of liquidity.

What is the sector’s outlook for 2016 considering that capital adequacy requirements are being reviewed?
The outlook is positive. It is very well regulated by Bank of Uganda and the sector players though competitors are keen on ensuring that our combined efforts lead to prosperity for individuals, businesses, and society. With the current stability in the exchange rate and interest rates reducing, we can expect a stronger environment.