Uganda: Commercial Banks Report Poor Performance, Thanks to The Wobbly Economy

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KAMPALA–Commercial banks in Uganda are in bad mood after recording bad performance in the first half of 2017, local media reports.

According to industrial data, profits dropped 4% year-on-year as at June 2017 compared to 18% growth in the same period last year. Industry client loans and advances growth remained under 1% in the same period.

Lenders attributed a drop in profits to reduced interest rates and slow growth in private sector credit to key sectors like manufacturing, real estate and construction – where lending remained in negative as of June 2017.

This performance reflects a slow growth in GDP printed at 3.9% in FY2016/2017, down from 4.5% a year before.
Analysts say future performance of the sector will be driven largely by heavy investments in oil and gas sector which is expected to swallow over US$15 billion from 2018-2020.

Others say banks will change their strategy to survive.

Stephen Kaboyo, the managing director at Alpha Capital Partners, a financial services firm said that the harsh business environment continues to be a big drag on the commercial banks profitability.

“The rising loan provisions, high cost of doing business among others have got many bankers wondering about the earning prospects in this financial year,” Kaboyo said.

As we go along, he added, we are likely to see some restructuring in order to better compete in a very challenging operating environment.

“Some banks will have no option but to right size, consolidate their operations by closing branches and these business strategies may come along with job cuts,” he said.

Commenting specifically on Dfcu bank which show a jump in net profit from Shs 23 billion in the first six months of 2016 to Shs 114 billion in the same period this year, Kaboyo said: “DFCU is now a big bank going by its asset base. Practically big banks seen in terms of assets are always near the tip of profitability charts when you analyse their return on assets and return on equity.”

He said that another big advantage of big banks is that they can better diversify their risks across sectors. “DFCU now fits in the category of systematically important bank,” Kaboyo said.

Source: The Independent