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2023: How banks made profits, reduced bad debts

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A woman displays fifty thousand shilling notes. PHOTO/EDGAR R. BATTE

Commercial banks' annual financial results for 2023 have shown that banks in Uganda maintained strong capital buffers and bagged some profits, although some registered losses.

Banks’ financial statements also indicate that the banking industry liquidity coverage ratio - a measure of the ability of the banks to withstand a 30-day liquidity stress period - remained sound and the banks provided products to both corporate and Small and Medium Enterprises, which resulted in the growth of bank assets.

In the spirit of beating competition and attracting more clients, Ugandan banks have stepped up their financial services with new digital products that allow clients to access their financial accounts anytime, anywhere.

Examining various components of banks’ balance sheets, such as customer deposits, provisions for bad debts, profitability, and total assets, reveals a mixed landscape across both major institutions and smaller banks. Some have reported growth in profits, while others have experienced declines, often coupled with increased provisioning for potential bad and doubtful debts. 

But there was a reduction in the provisioning of bad debt while some banks registered some increases in the provisions for bad debt.

In this case, we are using the six Domestic Systemically Important Banks (DSIBs) how they fared in 2023 beginning with Stanbic Uganda Holding. Stanbic, which is part of the Standard Bank Group has five subsidiaries which include Stanbic bank Uganda Limited (SBUL) Stock brokerage (SBGS), Technology solutions (Flyhub), Real estate, (SPL) and SBIL (SMEs Training). In its financial results for 2023, it stated that credit provision went up to Shs69 billion from Shs59 billion in 2022, representing 16.6 percent.

However, Stanbic Uganda Holdings said its asset quality, the non-performing loan ratio (NPL) increased to 2.9 percent in 2023, up from 2.6 percent in 2022 with the largest share of the non-performing loans coming from default by the SMEs, which constituted Shs53 billion.

Giving the highlights of 2023, the chief executive, of Stanbic Uganda Holding Limited, Mr Francis Karuhanga, said in a financial results presentation: “Our performance –business remains strong despite continual shocks (global and local). We diversified our business model, and revenue stream. Well skilled staff compliment. We remain market leader and contributor to society.”
In terms of profitability Stanbic registered a massive increase in profitability, rising to Shs412 billion in 2023, up from Shs357 billion in the financial year 2022. Its profit was supported by increased customer deposits, increased lending to private sector and general.

The provision for doubtful debts, which is also referred to as the provision for bad debts or the provision for losses on accounts receivable, is an estimation of the amount of doubtful debt that will need to be written off during a given period. 
 The International Accounting Standards Board (IASB) and other accounting standard setters set out principles-based standards on how banks should recognise and provide for credit losses for financial statement reporting purposes.

People in a banking hall. Some banks have opted to move down to tier two institutions. PHOTO/Michael Kakumirizi  

In July 2014, the IASB issued International Financial Reporting Standard 9 – Financial Instruments (IFRS 9), which introduced an “Expected Credit Losses” (ECL) framework for the recognition of impairment.
So, banks subject to IFRS 9 are required to disclose information that explains the basis for their ECL calculations and how they measure ECLs and assess changes in credit risk.
They must also provide a reconciliation of the opening and closing ECL amounts and carrying values of the associated assets separately for different categories of ECL (for example, 12-month and lifetime loss amounts) and by asset class.

The timely recognition of, and provision for, credit losses promote safe and sound banking systems and play an important role in bank supervision.

The International Accounting Standards Board (IASB) explains that under IFRS 9, financial assets are classified according to the business model for managing them and their cash flow characteristics. In essence, if a financial asset is a simple debt instrument such as a loan, (b) the objective of the business model in which it is held is to collect its contractual cash flows (and generally not to sell the asset) and (c) those contractual cash flows represent solely payments of principal and interest, then the financial asset is held at amortised cost.

“The ECL framework is applied to those assets and any others that are subject to IFRS 9’s impairment accounting, a group that includes lease receivables, loan commitments and financial guarantee contracts,” the IASB said.

The Bank of Uganda instituted IFRS9 on January 1st 2018 and all the commercial banks have adopted IFRS9 and plus some financial institutions and companies as well. Since the introduction of IFRS9 banks in their annual financial reports do indicate the provision for bad and doubtful debt in their financial results.

The financial results for Centenary bank indicate the bank’s provision for the bad and doubtful debt increased to Shs34.2 billion in 2023 from Shs21.8 billion in the financial 2022. Its financial results show that the bank’s non-performing loans and other assets reduced to Shs92.2 billion from Shs100.63 billion in the financial year 2022. 

Financial inclusion and digital innovations
In his commentary accompanying the financial results, the managing director of Centenary Bank, Mr Fabian Kasi said: “We improved access and usage of our services through enhanced digital offerings. Our agent banking channel contributed 52 percent of transactions, mobile banking 18 percent, ATMs 19 percent, and the banking hall transactions went down to 11 percent.”   

For the case of Standard Chartered Bank Uganda its provision for bad and doubtful debts reduced to Shs32.5 billion from Shs91.5 billion in 2022. The financial results show that the bank’s non-performing loans and other assets increased to Shs33.5 billion from Shs14.8 billion in the financial year 2022. This means the ratio of its non-perform loans stood at 2.96 percent in 2023. 

The managing director of Absa bank, Mr Mumba Kalifungwa said: “Our 2023 performance underpinned by consistent delivery and a dedicated focus on strategy execution.”

The financial results for Absa bank Uganda limited indicate that the bank experienced a good financial year in 2023 with its provision for bad and doubtful debts falling to Shs2.3 billion down from the high of Shs807 billion in 2022. Its non-performing loans and advances dropped to Shs175.2 billion from Shs194.8 billion in the financial year 2022.

The director financial stability department of the Bank of Uganda, Mr Robert Mbabazize told Prosper Magazine on May 13, that the performance of banks in 2023 improved significantly.
“Banks have recovered. The profitability has improved, their asset quality has improved and the level of Non-Performing Loans (NPL) has remained stable around 5 percent in 2023,” he said.
Mr Mbabazize said banks in Uganda are well capitalized and they are all set to meet the deadline for the capital increment of Shs150 billion by June 2024 although some have willingly opted to move down to tier two (Credit Institutions).

“The capital adequacy is very important for banks to absorb shocks and remain resilient,” he said.

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Adding: “The economic prospects have been bright and the banking sector has improved. The capital increase will even make them become much stronger and more competitive banks.”
In the financial year 2023, the dfcu bank saw its allocation for the provision of bad and doubtful debts, dropping to Shs2.188 billion from Shs2.338 billion in the financial year 2022.
The financial results of dfcu indicate that its non-performing loans and other assets slightly increased to Shs108.1 billion in 2023 from Shs107.6 billion. The dfcu’s total assets stayed in almost the same range of Shs3.204 trillion from Shs3.282 trillion in the financial year 2022.

Equity Bank Uganda Limited's financial results show that its provision for bad and doubtful debt increased to Shs191.2 million from Shs90.6 million in 2022. Its non-performing loans and other assets also increased to Shs363.9 million from Shs277.7 million in 2022.

Bank performance for 2023. 

In terms of profitability, the bank registered a net loss of Shs18.8 billion arising from internal frauds.
Along with the Domestic Systemically Important Banks (DSIBs) the other commercial banks also registered positive development during 2023. The Bank of Baroda of Uganda had its provision declining to Shs9.5 billion, down from Shs11.065 billion in the financial year 2022. While its non-performing loans and other assets dropped to Shs414 .9 million, down from Shs14.9 billion in 2022.

The Housing Finance Bank registered a growth of 11.3 percent in profit after tax of Shs58.5 billion in 2022 to Shs65.1 billion in 2023. Its customer deposits increased by 44 percent from Shs1.1 trillion in 2022 to hs1.6 trillion. The total assets increased by 32.1 percent from Shs1.62 trillion in 2022 to Shs2.14 trillion in 2023.  

Diamond Trust Bank registered a profit of Shs41 billion, and customers’ deposits increased to 2.2 trillion from Shs1.9 trillion in 2022.