STANBIC BANK RETURNING TO ITS UCB ROOTS

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Last week Stanbic released its annual results announcing record profits, though shareholders were left grumbling because for the second year in a row their dividends have been put on ice.

Now a holding a company, with the bank being one of its subsidiaries, Stanbic reported revenues just shy of a trillion shillings at sh903b, which led to an annual profit of sh269b which represented an 11 percent jump in profit from the previous year’s sh831b.

We take the turnaround of the Stanbic, formerly Uganda Commercial Bank (UCB), for granted but it is hard to ignore its impact and its centrality to the industry and the economy.

The group has a loan book of sh4.8trillion of which sh3.72trillion is lending to tits customers and the rest being to other banks.

What continues to amaze me is how much they pay in tax. Last year they paid sh82b up from sh77b the previous year.

Why this is impressive is that their tax bill amounts to about $23m. in 2002 when Stanbic bought UCB it got it for the princely sum of $20m, so essentially every year from here on end, assuming Stanbic continues in its profitable ways, it will be paying us at least a new UCB every year. (Maybe we should ringfence this money and start another UCB, if we so badly need it?)...

And dare I say this is nothing compared to the ripple effect they are having through lending to the private sector.

But they may have become too big for their own good and their management is being forced to go into areas that are outside its corporate banking comfort zone.

First off there are some interesting trends, which make the sale of UCB those many years interesting in hindsight.

One of the issues that made it difficult to sell UCB was its extensive upcountry network – 190 branches at one point. Most of them were unviable used mostly to pay public servants up country and collect some taxes. Government’s condition that any buyer should commit to keeping them open was the poison pill in the deal.

It was such a deterrent that UCB was only attractive to conmen like Westmont Bhd, which it was recently discovered was just a shell company belonging to the now defunct Greenland Bank.

Stanbic took over a leaner UCB, which had 85 branches, many of which are becoming more unviable by the day.

An interesting statistic popped out at me, that since 2016 customers coming to the banking hall has dropped to 9.1 percent last year from 42.5 percent six years ago. Meanwhile customers transacting through digital channels now stand at 34.8 percent from five percent in 2016. This reality suggests Stanbic should be shedding even more branches as their customers will increasingly not need to come to line up in the banking hall.

But to return to the claim that Stanbic is easing its way back to its UCB roots. The bank is providing financial services to an increasing number of farmers by using Agricultural based SACCOS. Over 150 such SACCOS are working with the bank accessing credit for as low as 10 percent, the ripple effect from this they estimate affects more than three million people between the ages of 14 and 64. In addition they are helping farmers in Hoima prepare products that are of the quality that the oil & gas industry can consume.

More has to be done in the agricultural sector up and down the value chain beyond production and the bank seems to be touching off the right pressure points.

They are also helping traders with the traditional products – credit, invoice discounting and working capital but in addition they are helping them meet their tax obligations. The formalization of their clients will go a long way to improving their viability and sustainability.

There was one sore point as mentioned earlier. The central bank has prevailed on the bank not to pay out a dividend for the second year I a row – sh100b in 2020 and sh50b in 2021. The Bank of Uganda argues that the full effects of the covid-19 pandemic on the industry are not fully appreciated and by asking banks not to pay out dividends and other discretionary payments is them erring on the side of caution...

They however say that the suspension is being handled on a case by case basis, if a bank can make the case that they can afford a dividend payout while remaining solvent enough to ride over any covid hangovers they are welcome to make their case. Bank of Uganda would rather maintain a wait and see approach nevertheless.

The lesson for me is that beside our jealousy of the huge monies such companies make – and in the case of Stanbic bank, we failed to make them when it was ours, we should get out of the way of such entities and let them do their thing. After all its in their best interests to serve more and more people, because in that way they can make more and more money.

On the day they were releasing their results – March 30^th, Standard Bank the parent company made 160 years, the smart thing to do is to take advantage of that rich institutional memory, spare ourselves the pain of reinventing the wheel.