Elias Biryabarema
6 May 2008
Kampala — The banking industry performed robustly in 2007, effectively putting behind it the difficult times of the preceding year when a combination of an acute energy challenge and a sluggish economy pulled banks into an enormous distress, depressing their earnings by crushing margins.
With nearly all the major industry players having published their results for 2007, the picture emerging indicates most banks saw their net profits swell by double digit growth rates, with assets and deposits equally ballooning by vast margins. A few though had their profits rise only modestly, hemmed in by mounting competition and operational costs.
An industry analyst and manager of iknowuganda.com, Mr Robert Katuntu said the 2007 windfall was least surprising minding the multiplicity of charges that banks levy consumers and sky-high interest rates.
"They earned great profits but obviously some body is paying for it that's the ordinary consumers of banking services," he said. 2007's performance results also appeared to herald a new industry dynamic that is shifting power toward what had been considered the industry's underdogs and laggards.
Centenary Bank was the best illustrator of this new trend. Traditionally a staid bank with a slow business approach, the bank stunned analysts and the industry at large when it reported the largest after-tax profit growth rate of all, notching a considerably weighty Shs16 billion, from last year's Shs8 billion.
That was a 91.2 per cent growth rate. Managing Director, Mr John Giles noted fittingly in the media that, "2007 has been a year of change for Centenary Bank."
Centenary's stellar performance was in part a harvest from its last year's heavy investments in branch expansion and brand rejuvenation that involved a complete makeover of its corporate identity.
Centenary also piggybacked on the growing power of retail banking, itself a result of a fundamental shift in the industry. In decades past Uganda virtually had no noticeable middle class, forcing banks to principally rely of a few corporate clients and the little formal sector that exited.
That has since changed. Uganda's economy has sustained a steady growth rate for the last ten years or so, producing thousands of both low and high paying formal sector jobs and pouring thousands of workers into middle class ranks.
These salaried Ugandans have become the new force that accounts for a great deal of the money flowing into the banking industry, particularly through their immoderate appetite for job-backed loans. Thus banks like Barclays, Standard Chartered and others that had ignored retail banking have since seen their power slowly erode towards those--like Centenary, Post Bank and Crane Bank--that have long banked on it.
Underpinning that growing shift of power toward consumer banking, PostBank, perceived widely in Uganda as the poor man's bank, recorded an astounding 184 per cent rise in profit, from Shs273 million to Shs778 million.
The bank's Managing Director, Mr Stephen Mukweli cited "customer centric approach" and "improvements in our corporate identity," as the primary drivers of last year's performance. Post Bank is expected to sustain its momentum in 2008, invigorated by the vast cash infusions for the Bonna bagaggawale anti poverty programme.
Uganda's largest bank, Stanbic Bank reported the industry's biggest profit, an eye-popping Shs53 billion, which was a 34 per cent surge from 2006's Shs39 billion.
This was Stanbic's biggest ever profit and reflected healthy results from the bank's relentless expansion and recent reforms in customer care. Stanbic, too, recently rolled out a couple of new product offerings, like Vehicle and Asset finance, which have expanded its customer base and improved on the quality of its investment portfolio.
Crane Bank saw its net profit rise by an impressive rate to Shs18 billion from 2006's Shs12 billion while its customer deposits expanded to Shs290 billion from the previous year's Shs172 billion.
The bank's Managing Director, Mr A. R Kalan said that, "2007 had been a year of "excellent results" and that the bank had "surpassed all performance targets."
In addition to commanding a sizeable share of retail banking in Uganda, Crane arguably has one of most energetic and progressive business approaches and customer care, qualities that have long endeared it to a growing number of new customers.
For the last two years, it has also been expanding its branch network reaching out to some of the most economically depressed regions in rural Uganda where appetite for formal banking is said to be growing fast.
Uganda's typical elite bank, Standard Chartered Bank recorded an average rise in profits, Shs42 billion from 2006's Shs27 billion. CEO Lamin Majang said 2007 had delivered them, "an outstanding set of results."
He attributed that performance to "impressive growth from our core business streams, consumer and wholesale banking." While StanChart remains an elite bank par excellence, it has since appeared to acknowledge the fact that the future doesn't seem to favour them thus taking steps, slow as they are still are, to enter the more hopeful retail banking.
That effort has been in the form of opening new branches up in Kampala's suburbia and upcountry. Poor and lower middle class Ugandans tend to shun StanChart for its considerably costly charges and high minimum balance requirements.
Bank of Baroda's profits increased slightly from Shs8 billion in 2006 to 10 billion in 2007. But if 2007 was something of a carnival night for the banking industry in Uganda, the mood was somewhat sullied by the absence of what should have been one of the VIP guests--Barclays Bank.
Battered by a series of missteps, Barclays witnessed one of the worst years in its recent history, allowing its profits to plummet by more than half from Shs15 billion in 2006 to Shs6 billion in 2007. For observers and analysts there's little surprise about the colossal misfortune that eclipsed Barclays in 2007.
The bank acquired Nile Bank early last year and has had teething problems with its computer software occasioning widespread grumbling among its customers.
The Managing Director, Ms Charity Jinya said; "2007 results reflect the focus of the business on investing to provide a solid platform for future growth."
Mr Patrick Ayota, the Barclays' Finance Director, argued in an interview that aggressive branch expansion had swallowed up a lot of money -- Shs22 billion --thus shaving off vast amounts of resources that should have turned up in profit numbers at the end of the year.
Barclays' investment in branches, 37 in total, according to Mr Ayota will pay off in the coming years. "We have invested in people and software to be able to be best bank to every one and we get good results soon," he said.
Tropical Bank which re branded last year appeared to have reaped little from its corporate makeover with its profits declining from Shs3.7 billion in 2006 to Shs3.2 in 2007.
The industry saw competition rise tremendously last year with new banks starting operations in Uganda. Kenya's KCB is expected to particularly upset the status quo, as it aggressively rolls out its services.
Already the result of this mounting competition have started to pour forth for consumers: charges are declining, customer care is improving and the usurious interest rates which have been the curse Uganda's banks are starting to show signs of slipping.
"Competition is pretty hot and we expect these interest rates and the general cost of banking to come down," Mr Katuntu said. Even then loans remain the most profitable business line for banks and there will be extreme resistance to bringing them down.
As KCB, United Bank of Africa and other new entrants expand their presence, they will force a "reasonable and rational pricing" of banking services from the current exorbitant rates.
Crane's Kalan noted that "Ugandan economy is placed on a trajectory of high growth," a forecast that bodes well the banks. Analysts predict that they will ride on this vigour in the larger economy to continue their rising profitability streak.
Mr Ayota, too, suggested that the economy was good and that there's a huge proportion of Uganda's bankable population that has not been captured yet.
"We are coming to these people and they will offer a good growth area in 2008."
Still, there are teething problems: soaring prices of oil and food are threatening otherwise healthy growth prospects. Food supply constraints which are chocking several countries across the globe are particularly posing a nasty challenge and if the situation continues to deteriorate, people will see a large chunk of their incomes hogged by their kitchen budgets and not much left to stuff in savings accounts in banks. Others might start falling behind on their loan repayments.
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