Stanbic profits in first half of 2017 drop on lower interest rates

Stanbic Bank, Uganda’s largest bank by assets, reported a year-on-year fall in after-tax profit for the first half of 2017, which it said was emblematic of suboptimal growth in the banking sector during the period.

The bank’s net profit fell 11% year-on-year in the first six months of the year to Shs95bn from Shs107bn last year. Revenue was down 6% to Shs314bn, with declines recorded in both interest and non-interest income; the 10% decline in non-interest revenue was due to a “drop in trading revenues as well as lack of volatility in forex exchange margins,” the bank said.

It was, however, keen to emphasise that its performance should not be judged solely by its income statement. “Supporting trade and infrastructure played a key role in our performance as we grew our off balance sheet exposure to an excess of Shs1 trillion in support of the development of our nation,” Patrick Mweheire, the managing director, said at a press conference on Tuesday.

Customer deposits increased by Shs388bn to Shs3,226.6bn, while loans and advances to customers rose by 7.5% to Shs2,004bn. It’s assets increased by Shs271bn to Shs4,777bn, spurred by the rise in loans and advances to customers and other banks, and government securities held for trading.

In the results presentation to journalists, the bank’s chief financial officer, Samuel Mwogeza, noted that commercial bank’s average lending rates reduced by 2% between December 2016 and May 2017. This was in reaction to the central bank’s expansionary policy, which saw its policy rate falling to 10% – the lowest since July 2011 when Central Bank Rate was introduced after the bank reformed its monetary policy framework.

The fall in lending rates “has an annualised impact of Shs100 bn on interest income off a loan book of approximately 6 trillion,” according to the presentation, enumerating the impact of lower lending rates. Stanbic Bank’s prime lending rate dropped by 5% between June 2016 and June 2017, lowering interest income by an estimated Shs15bn. In the first half of this year, the lower lending rate reduced income from loans and advances by Shs4bn.

But the bank says it has factored this trend into its forecast for the financial year that started this July. It hopes to recoup part of the lost income from a leaner and more efficient operational and organisation structure.

The aim is to save Shs7bn through cost-cutting measures such as a freeze on hiring new staff, closing some premises, litigation, and digitisation. This is all part of a business transformation process that came out of a review the bank conducted in partnership with Deloitte, the professional services firm.

The presentation also noted that the lower rates will hit their lowest point this year, providing a strong base for growth in 2018.