SHILLINGS AND CENTS

By Paul Busharizi

This week, the last of the banks published their results before the statutory April 30 deadline.

The banking sector is profitable on the whole and except in the case of Barclays Bank, whose bottom-line was weighed down by a sh30b expense to cover doubtful loans, all the major banks experienced double digit growth in net profits.

Centenary Bank almost doubled its profits to sh16.4b in 2007 from sh8.59b the previous year boosted by a sh50b growth in advances and loans to customers.

Of the major banks, Standard Chartered was the biggest gainer with earnings up by more than 50% to sh42.4b from sh27.8b the previous year.

This came on the back of a sh60b jump in the loan book last year.

Stanbic also came in strong, growing net profit by 35% to sh53b, while putting on sh137b in advances and loans to customers.

All the industry ratios – efficiency, loan losses compared to loans and return on equity, show a banking industry finally out of the turbulence of 10 years ago.

In April 1999, Greenland Bank was shut down, the climax of a bank crisis that had seen or was to see Teffe Bank, ICB and Trust Bank going under and the central bank takeovers of Nile Bank, Sembule Bank and eventually Uganda Commercial Bank.

Among their major sins was an accumulation of bad debt to the point that they could not effectively operate as well as insider lending.

The closures triggered a suspension of licensing of new banks, an increase in bank minimum capital requirements to sh1b and then to the current sh4b, a beefing up of the central bank’s supervisory role, the privatisation of Uganda Commercial Bank and the recent opening up the industry to more banks.

Increased competition in the industry has seen banks compete for customers through product innovation, increased access to financial services and pushed up credit to the private sector.

And last week the central bank announced that the Credit Reference Bureau (CRB) will be up and running in June.

Lenders will now be able to objectively judge the credit worthiness of borrowers, whose credit history will be obtained from the Bureau.

This is a landmark development because previously good borrowers were being penalised with high lending rates for the bad loans contracted by bad borrowers.

Hopefully, the Bureau will help borrowers with a good credit history to benefit from lower lending rates.

Easily half of Uganda’s economic activity takes place outside the formal banking sector.

Banks are the most efficient means for roping in all this cash, aggregating it and deploying it into the most productive sectors of the economy.

Our banking sector still has a long way to go before they can carry out this important function efficiently.

For example, currently most lending still goes to trade and services, though construction and manufacturing are growing their share of the pie.

There is little credit going to agriculture in relation to the proportion of people employed there.

And there is still an acute shortage of affordable long-term finance.

The private sector the world over is not the most effective distributor of resources – choosing to veer towards safer, quicker returns and to shun projects whose return stretch over longer periods.

The licensing of the CRB is a useful government initiative, as is the licensing of the new banks but the government will have to think strategically about how to funnel more and more finance to agriculture, whose development in terms of job creation can have a significant impact on the economy.

Without an interest in a bank of wide enough reach to push this agenda, which is just as well, the Government will have to put on its thinking cap in order to partner with private banks and financial institutions.

The Government bureaucracies are often suspicious of collaborating with the private sector, maybe due to some socialist hangover, but this is necessary especially in a country like Uganda where the Government has shown itself incompetent in the management of business whose benefits spread beyond a small connected clique.

The liberalisation of the economy required real political bravery in the 1980s and 90s, we now need a similar intellectual bravery not only in working with banks but also in education, health and infrastructure development, to take us to the next level of development.

pbusharizi@newvision.co.ug