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.
