POST BANK MAKING BELIEVERS OF US

The banking industry’s annual reports are coming in fast and furious ahead of the month end deadline.

In general the industry seems to be doing what it does best, making money and growing from strength to strength. The capital requirement increase – banks were required to increase their minimum capital to sh150b from the previous sh25b, has not worked itself into the bottom line yet, but we can expect that the effects of this will begin to show up in this year’s results.

Among the eye watering returns of the big players, one small player (is it small anymore?) is quietly but determinedly gaining ground on the big boys.

When critics of the banking industry start complaining how the industry is dominated by foreign capital and how there are no major local players, they either forget or unaware that Housing Finance Bank and Post Bank are local banks.

Post Bank is wholly owned by government and only begun operating as a Tier I bank in 2022.

Last year Post Bank reported a net profit of sh27.5b an 82 percent jump from the previous year’s sh15.2b. this came on the back of a 30 percent rise in income largely due to the loan book growing by a third. Growth in expenses did not keep up with income allowing the bank to report a 68 percent leap in operating profits.

It helps too that while high bad debtor provision have fallen to 24 percent of the loan book compared to 119 percent in 2020. Bad debts are the bane of the banking industry’s existence, a lack of discipline in this one area can and has led to collapses in the banking industry in our lifetime.

And to show last year’s result was no fluke, over the last five years the bank has shown double digit growth in total income, net profit and size of loan book. This last segment has contributed to the bank crossing the one trillion shilling mark in assets for the first time last year.

Last year the bank launched its online wallet Wendi, which will and is already easing government’s disbursement of Parish Development Model (PDM) funds beyond the use of its 58 branches.

The bank has proven efficient with the funds it superintends over reporting a return on Assets of 2.6 percent versus the industry average of 2.2 percent. While share holders will be glad to know the Return on Equity last year was 16.8 percent. While this is lower than the industry average of 20 percent it has been growing at compounded average range of about 15 percent over the last five years.

The point is that assuming Post Bank can maintain its momentum and discipline it can become a very significant player in the economy not only because of its size but because of its reach into the rural areas...

Discipline is key as their cost to income ratio of 83 percent  way higher than the industry average of 68 percent or market leader Stanbic’s which hovers around 50 percent.

Interestingly the bank which was hived off from the old Post & Telecommunications Corporation—the other companies are Uganda Telecom and the Post Office, is the only one of the trio showing not only a return but potential growth.

What does it take to run a state owned bank properly? Post Bank, the only wholly owned government Tier I  bank,  maybe showing that it can be done. It helps that in Chairman Andrew Owiny and CEO Julius Kakeeto, who took over four years ago, they have leaders with strong private sector experience.

It also probably helps that government’s objectives of increasing financial inclusion across the country ties in very well with Post Bank’s drive for profitability and long term sustainability.

This column has been consistently opposed to government being in business, not out of some capitalist dogma but because government’s main objective – anywhere in the world, is to hang on to power. It does this by doling out patronage, which often does not tie in very well with company’s efforts at long term sustainability.

"Government backed companies, the world over fail or at least fail to efficiently deliver goods and services, because when the desire for regime survival comes up against the profit motive, the latter often loses out...

It is still early days by any measure to bring out the champagne for Post Bank but initial indications are promising.

Opportunities abound especially if the bank can roll out its Wendi online solution, which with its 58 branch network and hundreds of banking agents, could provide the necessary synergies for the bank to climb to the next level in the industry.