The lender has recorded a drop in profits again
Kampala, Uganda | ISAAC KHISA | Did dfcu mess up its growth trajectory with the acquisition of Crane Bank assets? How can it evolve to make more money for the shareholders? dfcu management seems to be grappling with these questions following another sharp drop in profits.
Financial results released on Aug.16 shows that the listed lender, which had previously recorded continuous growth in profits prior to acquisition of Crane Bank assets, recorded a 14.4% drop in net profit to Shs35.6bn for the first six months of this year to June.30 due to a reduction in borrowings, lower recoveries and increased operating expenses.
During the first year of Crane Bank takeover in 2017, dfcu recorded a whooping Shs114bn in net profit for the half year, up from Shs23bn in 2016.
Loans and advances reduced from Shs1.42bn in 2018 to Shs1.36bn in 2019 as the bank maintained a cautious view of lending to small and medium enterprises citing turbulent circumstances in the international financial markets such as Brexit, trade wars, lower growth in China and Europe.
Similarly, customer’s deposits fell from Shs2.0bn to Shs1.99bn during the period under review. Though the bank’s net operating income grew marginally from Shs146bn to Shs148.5bn, its operating expenses grew 3% to Shs99.1bn.
This is the second time in a row that the lender is registering a sharp drop in profits. Last year, dfcu recorded a 52% decline in net profit to Shs61.7bn citing decline in earnings from investment in government securities.
Also, the bank’s total assets reduced by 5% from Shs3.1tn to Shs2.9tn due to repayment of borrowed funds and subordinated debt.
This comes barely a year since the financial institution hired Mathias Katamba as the managing director in 2018 to replace Juma Kisaame, who had served for 11 years. This followed controversial take-over of Crane Bank assets in 2017.
However, the recent performance tends to reveal that the lender is yet to recover from the post Crane Bank controversial acquisition era.
dfcu’s drop in profits comes at the time the banking sector is recording an increase in demand for credit, implying that it would have easily tapped into the opportunities to record faster profit growth like its counterparts.
Stanbic Bank, for instance, registered an increase in net profit from Shs96bn to Shs135bn for the first six months of the year ending June 30, driven by increased borrowing and non-interest income.
The latest Bank of Uganda Monetary Policy report for June 2019 shows that the average annual growth in PSC for the quarter ended April 2019 stood at 13.9% compared with 7.2% during the same period in 2018, supported partly by a rebound in economic activity, improvement in asset quality evidenced by lower non-performing loans (NPLs) and a relatively lower cost of borrowing.
The annual shilling-denominated loans grew on average by 19.4% for the quarter to April 2019 compared with 12.5% in the quarter to April 2018. Foreign currency denominated lending registered an average growth of 4.6% during the period as importers sought for foreign currencies.
In terms of sectors, the report said credit growth remained robust and positive across all sectors. The report lists sectors of trade and manufacturing as having registered the strongest growth averaging 16.1% and 22.4% in the quarter to April 2019, up from 10.7% and 13.6% in the previous quarter, respectively.
However, dfcu’s management believes that the next six months will register tremendous profit growth.
“We expect a growth of our loan-book, particularly in our SME-and Retail business,” the lender said, adding that there is a projected growth in the retail funding and implementation cost-control measures.
A section of financial analysts told The Independent that the drop in deposits and profits could have been driven by the exodus of former Crane Bank customers.
However, Aeko Ogodia, the Chief Executive Officer of Xeno Technologies, a Kampala-based investment fund management company said there is still room for dfcu to recover from the slow profit growth.
“Some banks tend to record drop in profits in the first half but make a quick recovery in the second half possibly as they sign for better deals,” he said.
“However, it remains unclear on whether dfcu is targeting SME banking or retail banking. Institutions such as Citi Bank seem to have clarity on the target clients – corporate and SME – from the start,” he said.
He said it is time for dfcu to clearly define its market niche and capitalise it for growth going forward.