Uganda Development Bank Limited (UDBL) has reported a fall in net profit after a rise in provisions for bad debt and writing off of some loans.
In a financial statement released last week, the loan write-offs for the bank rose to Shs6.87b in 2015 as a result of bad debts. In 2014, the bank did not write-off any loan. However, authorities at the bank were unwilling to name their debtors before the bank’s annual financials are released.
Banks often write-off bad debts because they have become difficult and expensive to collect and leaving them on the balance sheet comes with extra costs.
“This was a decision the bank took after recovery efforts to resuscitate these loans failed over a long period of time. The bank needed to clean up its portfolio and maintain a healthy book while recovery efforts for these loans continue,” said Ms Patricia Ojangole, the chief executive officer UDBL, in an email response to Daily Monitor.
UDBL is the only development bank in Uganda with its ownership being 100 per cent government.
The net profit of the bank dropped to Shs2b in 2015 from Shs5b in 2014, specifically because of the write-offs. In its statement, the bank also had to make provisions for some debts. The provision means the bank is not giving up on the loans where defaults have been made.
These provisions rose to Shs4.5b in 2015 from Shs2.8b in 2014. Additionally, expenses for the bank rose to Shs11bn in 2015 from Shs8bn in 2014 on account of the loan recovery process.
“The major contributors to the high operating expenses included; the high legal costs incurred for the litigation processes for poor performing loans. The Bank also successfully hosted the annual forum of the Association of African Development Financial Institutions in November 2015. This contributed to the high operating expenses for the year 2015,” Ms Ojangole explained.
UDB’s income rose by 55 per cent in 2015 to Shs17b mostly because interest earned on loans increased. The loan book increased by almost Shs40b to Shs141b in 2015 as demand increased.
Lending to agriculture comprises at least 57 per cent of the UDBL loan book.
The potential for the bank was emphasised in the budget for the current financial year capitalisation of Shs500b for the next five years. That is an annual average of Shs100b. However, by the end of 2015, the government had only recapitalised UDB by Shs20b. That means with the Shs20b UDB has assets of Shs205b, which is very small for a bank expected to finance long-term projects. “The country has so much demand for development financing and as a development bank, we look out for projects that have the capacity to contribute to the national development goals as defined by the Vision 2040 in key development sectors like agriculture & agro-processing and manufacturing,” Ms Ojangole said.