WE WERE RIGHT TO PRIVATISE UGANDA COMMERCIAL BANK

Last week Stanbic released their annual results which were really more of the same.

Revenues were up to sh661b from 636b in 2017. Profits followed suit growing 7.5 percent to sh215b in 2018 from sh200b in the previous year.

But the number which caught my eye was the income tax expense. These leapt 25 percent to sh81.5b from sh65.2b in 2017.

The Sh81.5b check to the treasury would be cause for celebration in itself but if we looked further it has much greater significance.

Using the US dollar sell rate as reported in the Friday New Vision of sh3,730, Stanbic’s tax bill amounted to about $21.9m.

In 2002 Stanbic Bank bought the Uganda Commercial Bank (UCB) for about $20m!

"This means Stanbic is now making more money, many times over the buying price and after all expenses are deducted, the net is then taxed and this year is about equal to what they paid for the whole bank 17 years ago!...

Let that sink in for a bit.

That assuming continued profitability from the bank and relatively stable shilling we can expect the Stanbic Bank to pay us annually from here on end, the equivalent of the price they paid for UCB those many years ago.

And I am sure UCB successor is not the only one ringing the tills at the treasury. The same can be said for the breweries, the hotels, Umeme and any number of enterprises that prior to their off-loading were dead weight on the government budget but are now more than carrying their weight.

A perusal of the press at the time showed that many of the fears people had of flogging off UCB were unfounded.

A Joshua Musoke writing in the New Vision of August 31, 2001 was concerned that selling the bank to a foreign bank would leave the small saver in trouble.

“What will happen to the thousands of civil servants and small time savers if UCB is sold to a private bank … whose opening and minimum account balances are beyond the reach of many Ugandans particularly in the countryside.”

The bank can speak for itself, but going by the way deposits have grown since Musoke put pen to paper that fear didn’t hold up. In addition, since then we have had no minimum balance accounts introduced across the industry.

Another reader who preferred to remain anonymous argued that since public confidence had returned to the bank, there was sh100b in new deposits that came from depositors fleeing other collapsing banks, and since it had become profitable again — it made sh19b in its final year, though he acknowledged this was due to the bank’s portfolio overweighed towards government securities, there was no need to privatize.

But for the bank to fufill its full potential to Ugandans it needed to make its money lending to the private sector, and not to the government, the core of its business. If they had maintained that stand to date they would have helped mightily in keeping inflation down without lending much to the private sector.

From near zero lending to the private sector in its final year of existence, in 2018 Stanbic’s loan book stood at sh2.5trillion or about $670m!

There is a lot wrong with our financial sector, not least of all that there is little to no support for startup enterprises and the small businesses are treated as inconveniences to be suffered rather than supported.

But that is a function of structural issues and a lack of entrepreneurs with the muscle to fill in those gaps.

"The privatization process was a response to the reality that state enterprises were proving a black hole for government funds, were not producing and causing a lock jam in the economy, as most of them our monopolies....

With it came better management practices and new money that could unlock the assets. In UCB at the time of its sale in its various branches it had a multitude of computer platforms many of which did not only not to talk to each other but were invisible to each other. So where at its peak the bank held more than half the industry’s deposits they were of little use as they could not flow efficiently from places of surplus to places where they were needed.

But the naysayers will not go away. They argue that by handing over the bank to foreign capital rather than hold on to it, we have abrogated our duty to direct the economy through the strategic allotment of funds.

And they could be right. But at the time it was a choice between resuscitating the dinosaur, empowering to stimulate the economy or hold on to it content to let it sleep so it does little damage to its surroundings, when foreign owned banks continue to do what banks are supposed to do anyway.

Private lenders are not averse to supporting government programs – the South East Asians have proved that for the last several decades. Its juts that it will take more intelligence than having a “supporter” seating in the CEO’s chair and receiving chits all day, because truth be told that’s what many people think government intervention should look like.

"Congratulations are in order to Stanbic but they are just the poster boy of a farsighted policy that has helped unlock some of the potential of this country, that is yet to reach its full potential in everything from beverages to manufacturing; hospitality to transport....