Profit growth at Stanbic Bank – Uganda’s largest bank by assets – picked up a little pace in the first half of 2018 following a decline last year. Still, the bank’s primary source of income continued declining as the central bank’s expansionary policy squeezed interest spreads.
Net income before loan loss provisions rose 2.3% to Shs321bn in the six months ended June 2018 compared to a decline of 6.2% in the same period last year. Profit before income tax increased by 3.5% to Shs132.9bn while profit after tax grew 0.7% year on year to Shs96bn. Last year, after-tax profit declined by 11% while profit before tax was down by 10.9%.
The rebound was supported by an increase in the bank’s non interest income which rose by 12.3% to Shs155bn in the first half, a complete turn around from the first half of 2017 when it fell 8.8% to Shs133bn. Net trading income, particularly, increased by 13.6% to Shs78.2bn compared to last year when it fell 27%. Fees and commission income increased by 8% – lower than 2017’s 19% – to Shs71.7bn.
This, according to the Stanbic’s chief executive Patrick Mweheire, reflects the “strength of our diversified business” which allowed the bank to deliver a “solid performance” in “a challenging environment”.
The “challenging environment” is no doubt the Bank of Uganda’s rate cuts over the past two years. The central bank rate – which determines the cost of short-term financing to banks and hence the rate at which they can lend at – has fallen from 16% in April 2016 to the current 9%. “Stanbic has matched every single movement of the CBR for the last 18 months; reducing our prime lending rate from 25% to 17% today,” Mr Mweheire says in the results statement.
As a result, net interest income – a key measure of revenue from loans – continued declining in the first half; it reduced by Shs8.7bn between 2018 and 2017, compared to Shs5.8bn last year. Net interest income as a share of total income before provisions also reduced to 52.7% from 56.8% last year.