PostBank steps in big league with Shs27b profit

Briefly take us through the journey of PostBank
The bank has been in existence for 25 years. If you recall, it came out of the divestiture process during the privatisation [programme] in the late 1990s. 

The savings arm of post office was made independent and obtained a license to operate as a credit institution; a tier-two licensed financial institution. So, that gave birth to PostBank in 1998.
 
In what state did you get the bank?
At the time I joined the bank towards the end of 2019, it was operating as a tier-two credit institution and it had gone through a lot of challenges. Growth was slow compared to other financial institutions that had been around for a long time. It had governance and service challenges. If you recall, you’d find long queues across our branch network and in some cases customer queues stretched outside the banking hall to the streets, waiting to be served. If you wanted to transact, it was always a challenge.

As soon as I joined, the Covid-19 (pandemic) struck. [President Museveni officially confirmed the outbreak of Covid in Uganda in March 2020, three months after the reported index case in China at the end of 2019 – Editor]. I quickly realised that technology [of the bank] was outdated. 

The core banking was an old version that was no longer supported by the manufacturers in India because of age.

When we had to lock down the offices to work virtually, the business was really challenged as several processes could not be done remotely. For example, we could not run an end-of-day offsite. We had to come physically into the bank premises. 

During the lockdown, sustaining operations became quite a big challenge for us. Serving customers was a challenge as well because almost 80 percent of the bank’s transactions used to take place over-the-counter (in-person) in the banking halls due to a limitation of self-service channels.

What challenges did you encounter when you joined and what did you do to turn the bank around?
In addition to technology challenges, the bank had governance challenges. Additionally, it had applied for a licence to become a fully-fledged commercial bank, which application had been pending for over a decade. 

That licence wasn’t being granted possibly because the regulator deemed it unfit to ably compete as a fully-fledged commercial bank.

So, the first order of business was an institutional review followed by a restructuring process. 

The shareholder restructured the Board as well. 

The senior management team had to be strengthened with staff that would support the aspirations of the organisation and enable it to move forward.

And once that happened, of course, we had now to address the service issues. We thought it best to launch a digital transformation journey. We upgraded our core banking systems, the infrastructure, Automated Teller Machine switch and several applications. We enabled the instant printing of cards, which customers could access within 10 minutes from the previous six months of waiting.

We revamped the policy framework, policies and procedures to improve [the bank’s] governance.
 
What were the outcomes of these changes?
We created customer convenience and in return, customers trusted the bank more and are more comfortable working with the bank. Reviewers and auditors found a very improving risk management environment. Risk was being managed better, there was more transparency around the organisation about what we were doing, the target customers we were serving, and how we were going about improving the performance of the bank.

The bank addressed the pre-requisites of upgrading into a fully-fledged commercial bank and all these improvements culminated into the bank being granted a Tier 1 licence at the end of 2021 to operate as a fully-fledged commercial bank. As part of the strategy to address financial inclusion, the bank developed a wallet that has been branded as Wendi.

Towards the tail end of our four-year strategy, the Board and management brainstormed about the bank’s future to try and strategise how well we could compete. 

Financial services business is very competitive in this market; so, as an organization, the bank has to be competitive as well.

What has been the performance of the bank in the last 10 or so years?
In the last four years, the loan book, despite Covid-19 (pandemic) and its related challenges, multiplied by 2.3 and compounded annual growth has been 22 percent. Deposits in the last four years have grown from $348b to $790b, which is 2.3 times higher.

[We registered] a consistent compounded annual growth rate of 23 percent, which demonstrates increased trust by customers in the bank. Profitability has increased from Shs8b to Shs27.5b [in 2023]. That is more than 3.3 times, again consistently growing at 35 percent per annum, which is better than the [financial] industry average. 

All parameters have been consistently improved over the last four years. So, we are trending ahead of the industry averages and we would like to continue growing at that pace.

Where would you want to see PostBank in the next five to 10 years?
I would like it to be a leading indigenous bank. With support from the shareholders and the customers and ensuring good governance, I think it is a very achievable target to be the leading commercial bank in the country.

And not to just be a leading local commercial bank, but a bank that is delivering positive impact on the economy and society. I mean measurable objective impact. A very relevant bank for society through living our purpose of fostering prosperity for Ugandans.

Why is the growth of indigenous banks as the lead players in the financial system of a country very important?
The role of indigenous banks is very important as they can greatly compliment the services of the industry players through taking risk on the under-banked and un-banked [populations]. In every country, in every society, solutions to some of the problems is easier to derive locally.

You launched the mobile platform Wendi almost a year ago amid resistance. What has been its performance, particularly in disbursement of Parish Development Model cash to recipients?

Wendi has done well. To give you a background, as part of the digital transformation journey, we were seeking a solution on driving financial inclusion.

Taking lessons from the telecoms, who started participating in financial services 15 years ago but have managed to penetrate better than banks, we observed that the banks’ approach to driving financial inclusion was mainly through opening of branches, which is not sustainable due to the costs involved.

Many of the branches can turn out to be loss-making, eroding capital of the institution – the shareholders’ capital. So, we thought the easiest way now to go about reaching the under-banked and un-banked [population segment] was to look for digital solutions where we could take financial access closer to the community. That is how the Wendi initiative started.

However, as we were designing Wendi, we heard about government plans to roll out the Parish Development Model. Being a government-owned bank, we thought we were best-suited to develop a solution that would ensure the (poverty alleviation) money reaches the ultimate beneficiary.

We kept on wondering how the funds would be disbursed in some of the locations considering that as of today, 40 districts do not even have a single bank branch. Also, you have some districts with banks, but with the branches located in the town at the district headquarters.

We prioritised Savings and Credit Societies (Saccos) remittances as part of developing this wallet so as to ably address PDM payments. Wendi doesn’t restrict financial services to PostBank customers. Anyone and everyone can use Wendi. Wendi is integrated with the National Identification Authority (NIRA) database for confirmation of national IDs. All you need is your NIN. 
 
How many new customers has the bank got through that system?
We already have about half-a-million customers, but most of them are PDM [beneficiaries] because our priority was sorting out PDM remittances. About Shs250b has been processed on the platform, and we have paid 200,000 PDM [cash recipients]. It is a very robust payment platform and demonstrates the agility and disruptions that some of the new technologies present.
 
PostBank is one of the leading implementers of PDM, how is its implementation so far?
It’s faring well. We have been able to handle the 250,000 payments for the SACCOs entrusted to the bank. We’ve had a couple of incidences of social engineering driven by human behaviour like where a Sacco took a few members’ [mobile] phone passwords. [The outlaw] was arrested by security [and is facing prosecution].

The strength of Wendi is the transparency that gives visibility of the flow of funds which differs from the traditional banking where visibility is lost as soon as the customer withdraws the cash at the branch. 

With Wendi, you can follow the money to the ultimate beneficiary.

PostBank Uganda, a government-owned tier-one commercial bank, has announced Shs27.5 billion profit for 2023, a near doubling from that of the previous year.

The institution, in 2022, posted Shs15.2b profit, stamping a rollercoaster business performance under the new administration led by Managing Director/Chief Executive Officer Julius Kakeeto and Mr Andrew Kabeera, the executive director.

In an interview with this newspaper on Tuesday, a day after official release of the business performance results, Mr Kakeeto said the bank’s earnings last year represented 81.5 percent year-on-year growth, with deposits increasing in a year by Shs100b.

The institution’s lending was up by Shs123b, while its total assets grew by about Shs150b to Shs1.01 trillion.

While releasing the results on Monday, MD Kakeeto attributed the progress to investments in staff skilling, strengthening institutional capacity and embracing technology, which widened client base and access of services through mobile banking and Automated Teller Machines (ATMs).

“Before we improved our technology, eighty percent of our customers were doing counter transactions, but this has reduced to 20 percent,” he said.

He said the innovations spurred financial inclusion, particularly for rural populations, through support to businesses and livelihood programmes.

This followed the launch in November 2023 of Wendi, a digital financial transaction platform with least charges in town, deployed mainly in disbursement of Parish Development Model (PDM) cash to beneficiaries.

Mr Peter Ssenyange, PostBank’s chief financial officer, told a media briefing on Monday that the bulk of their deposits are from farmers, and medium and small businesses.

“More than Shs603b was given out to our customers as loans in 2023, especially farmers and medium and small business owners,” he said, adding that customer deposits grew from sh348b in 2019 to Shs790b by 2023. 

Mr Ssenyange said their income doubled from Shs111b to Shs206b.

As a result of these feats, Mr Kakeeko said more high-value private sector clients are enlisting with PostBank after seeing that the changes they are implementing are delivering value for depositors and the principal shareholder – the government.

“We had to change our (staff) culture … there was a laissez-faire approach to many things since we are government-owned … you could be government-owned, but you’re competing with private-sector players who are very aggressive and they need to make a return on their capital,” said Mr Kakeeto whose administration in 2019 replaced predecessors exited through prison on a range of allegations.

In line with its blueprint to expand services, the bank plans to introduce online money lending by June to supplant unregulated digital platform creditors that MD Kakeeto described as posing the “biggest threats” to borrowers.  

“They are disruptive,” he said, “But at PostBank, in June we will start our online lending. So, a lot of the small loans, I believe, are going to move to digital platforms.”

He said moving forward, the bank will move away from only reporting the profitability figures and assess the impact it has created in the economy to give a clear picture of whether they are on the right track or not.

The bank gave assurances that despite being a new entrant in the big tier-one financial institutions’ bracket, it has the Shs150b that Finance Minister Matia Kasaija, on December 16, 2022, set as the minimum threshold capital for all commercial banks, up from Shs25b.