Dividends for banking investors down but better than expected

Banking executives expect the industry to rebound citing projected growth in the economy

Kampala, Uganda | ISAAC KHISA | 2020 was a tough year in almost all fronts: public health, production, new orders, employment, and demand, among others. The once growing economy contracted and interest rates took a deep dive as coronavirus cases surged.

However, the dividends set to be paid to shareholders seem to be more than expected as evidenced by the annual performance announcements by some of the country’s commercial banks that have released their results.

Stanbic bank, for instance, has proposed a dividend of Shs 1.86 per share, equivalent to Shs 95billion for the year ended Dec.2020. This, however, is below the Shs 2.15 per share, equivalent of Shs110bn, paid in the previous year.

dfcu bank has proposed a dividend of Shs 37.7bn, which is 1.6 times higher than the profits recorded during the year. Last year, dfcu did not pay any dividends to its shareholders on the advice of the central bank to preserve enough capital in the event that the coronavirus pandemic became catastrophic to the industry.

“dfcu’s Shs50.33 dividends per share is second highest in history of the bank in dividend payout,” said George Ochom, the general manager of dfcu Ltd. dfcu listed its shares on the Uganda Securities Exchange in 2004.

dfcu saw its net profit  significantly drop by  68% from Shs 74.8 billion in 2019 to Shs 24 billion in 2020 due to increase in provisions for loans and advances, and impairment of the financial asset.

This was attributed to some of the loans that the lender took over from the Crane Bank transactions in 2017 but could not be recovered in the course of last year as a result of the pandemic.

The net loans loss provisions increased by 107% from Shs 14 billion in 2019 to Shs 30 billion in 2020 as the pandemic impacted on the customers’ business operations.

However, there was also a higher than anticipated impairment charge on the financial asset of Shs 50 billion in 2020 compared to Shs10 billion in the previous year.

The bank’s deposit base grew by 27% from Shs 2,039 billion to Shs 2,595 billion as customers preferred to hold on their cash instead of spending during the pandemic for fear of the uncertainties ahead.

Similarly, the asset base increased by 18% from Shs 2,958 billion to Shs 3,499 billion, upheld by strong growth in liquid assets as well as  loans and advances.

On the other hand, Stanbic Uganda Holdings (SUH) recorded a 6.9% drop in net profits from Shs 259billion to Shs241.6illion as the lender saw impairment losses more than double to Shs 91billion during the same period under review occasioned by the COVID-19 pandemic.

The Bank’s loans written off tripled to Shs 48bllion as non-performing loans and other assets increased from Shs183billion to Shs 218.9billion.

Similarly, the lender recorded a surge in customer deposits from Shs4.7 trillion to Shs 5.5 trillion, which further supported new credit to key sectors in much need of support especially during the peak of the pandemic.

Net loans and advances increased by 26.8% year on year from Shs 2.9 trillion to Shs 3.6 trillion as more clients acquired loans to sustain their businesses.

However, total asset quality deteriorated year on year due to the impact of covid-19 on client businesses.  The bank’s provisions for non- performing loans and doubtful debts grew by 110% to 91.8 billion.

Future outlook

This comes at the time the banking executives expect the industry to rebound citing projected growth in the economy.

Bank of Uganda projects the economy to grow by 3-3.5% in 2021 and 6% to 10% by 2023. However, the recovery will depend on the effectiveness of the measures put in place to contain the spread of the COVID-19 in the implementation of the African Continental Free Trade Agreement, and expected rebound in tourism; improvement in global investment and the continued recovery in exports due to a revived strength in foreign demand.

Anne Juuko, the Chief Executive at Stanbic Bank, said their aim this year is to continue to deliver on their promise to make dreams possible for the clients.

“Using digital technology, data and human insight, we aim to understand our clients, partners and employees as deeply and empathetically as we can,” she said.

“One of the ways we are improving the client experience is through our digital loan offering, where customers can now apply for a loan online or on their mobile phones and get the loan in under five minutes. By creating greater efficiency, our customers save time and we make it easier for them to access the financial support they need.”

Juuko said the bank also plans to ensure that it has a robust risk management framework that ensures that it is doing business the right way to enhance the value to the client experience.

She added that the lender is also committed to the implementation of the Social, Economic and Environmental (SEE) priorities which aim to deliver inclusive, enduring and environmentally sustainable value to its shareholders and to the societies and economies that it serves.

“As a business, we remain optimistic about a faster recovery of the local economy on account of a successful national vaccine roll out program and a resilient business community,” added dfcu Managing Drector and CEO, Mathias Katamba.

“We shall also continue to invest in capabilities that increase convenience for customers in the digital and alternative channels space and innovate products and services that improve the efficiency of our services and provide an all-round excellent customer experience.”

Katamba said even though the COVID-19 challenges remain for a number of sectors, the bank remains committed to supporting small and medium scale enterprises, advancing the cause of women in business, supporting key sectors of the economy in Agriculture, Manufacturing, Trade, Construction, Communications and Services.

Katamba added that the lender has laid the foundation to play an active role in the emerging Oil and Gas Sector.

Overall, the country’s banking industry, which has 25 commercial banks,  is expected to record a subdued profit growth for 2020 owed to the pandemic that disrupted business activities.

Last February, BoU extended the bank’s Credit Relief Measures for another six months to help commercial banks and other supervised financial institutions to continue restructuring loans and also provide loans to the commercial banks and financial institutions to lend out to the business community.

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