Thursday March 30 2017

Stanbic profit rises to Shs191b despite sluggish loan activity

By Mark Keith Muhumuza


Uganda’s largest bank continued to manage risk in 2016 but was still able to pull off 21 per cent rise in after-tax profit.

Financial results released on Wednesday indicate that the after-tax profit rose to Shs191b in 2016 from Shs151b in 2015 due to a rise in income from three main sources.

In a year the banking sector was expected to struggle due to high lending rates and lower than expected growth, Stanbic Bank Uganda was still able to generate more income.

“A mix of factors supporting growth: Investment in higher yielding AFS securities, higher yields from the loans and advances and good returns from investment of excess liquidity into the interbank market,” Mr Sam Mwogeza, the chief finance officer, Stanbic Bank Uganda, told reporters at a media briefing at the Kampala Serena Hotel yesterday.

According to the financial statements, income generated from interest rose from Shs350b in 2015 to Shs423b in 2016. Much of this income came at a time when lending to the private sector only grew by a marginal 3 per cent to Shs1.97 trillion.

Notably, Stanbic has increased its portfolio of government securities to Shs900b from about Shs700b in 2015.

Additionally, Stanbic doubled its lending to other banks in the sector to Shs758b, from which it was also able to generate more interest income.

“The key to our performance was meticulous planning for the cycle; the Ugandan economy does work in cycles closely aligned to the election calendar and 2016 reflected the pressures we tend to see around election time - high inflation expectations, a heightened interest rate environment and ultimately subdued credit growth,” Mr Patrick Mweheire, the CEO Stanbic Bank Uganda told reporters yesterday.

Stanbic is also a diversified bank that is able to generate income from other sources like trading, fees, and commissions.

For instance, in June 2016, Stanbic was one of the two banks in Uganda that swapped $645m (Shs2.3 trillion) of the $1.3b (Shs4.6 trillion) Karuma Dam loan, fixing the interest rate on this portion of the loan for its remaining 15-year duration. This is known as hedging.

The rate on the loan was floating. There were some earnings for the bank on the front. This non-interest related income contributed 40 per cent to the Stanbic Bank income growth.

“This is the major reason why our revenues and earnings have grown consistently in recent years notwithstanding the industry-wide spike in NPL’s driven by the high-interest rate environment. You will note that Non-interest revenue which is not susceptible to interest rate fluctuations represents over 40 per cent of our total revenues,” Mr Mweheire added.

Slow profitability

So far, three banks – Stanbic, dfcu and Diamond Trust Bank - have released their financial results and they have all grown in profitability.

However, the projection for the banking sector is that profitability will be down about 44 per cent to Shs304b.
The driver for this decline is in part attributed to Crane Bank on one hand and the large exposure to None-Performing Loans that were at 10.5 per cent – about Shs10.2 trillion - at the end of 2016.

Crane Bank contributed 4.5 per cent of that total NPL portfolio. Commercial banks have until April 30, 2017 to have published their financial results and that is when a clear indication on the biggest losers and gainers will be seen.
From the results seen so far, dfcu’s profitability was driven by increased income from government lending.