Business

Business SACCOs Decry High Interest Rates Charged By Banks, Microfinance Support Centre

Saving and Credit Cooperative Organisations (SACCOs) are by nature supposed to get resources from members and lend back to them at lower interest rates. They are also used for saving purposes.

However, as a SACCO grows, members’ contributions may not be enough to serve its purpose. This explains why many SACCOS borrow from commercial banks.

However, leaders of SAACOs say the high interest rates charged by government’s Microfinance Support Centre (MSC) and commercial banks are pushing them out of business.

 The Chairman of Kisenyi Development Works Association (KISEDEWA), Emmanuel Mwanje Kintu says that despite his effort to professionally manage the association by generating savings capital and mobilizing resources from members, the high interest rates charged by commercial banks and Microfinance Support Centre has seen many of their members avoid taking up loans, thus badly affecting their dream of fighting poverty and creating jobs through affordable business loans.

 He says that as an association, they decided to shun loans and embark on investing in other business venture using the saving capital to create jobs for the community and members.

“We need special interest rates as SACCOs to be able to contribute to the development process; we lend to our members at a low interest rates compared to the bank loan interest. As an association, we decided to invest our saving capital to other ventures like events management and other businesses to create jobs,” Mwanje said.

He added that while the members were optimistic that the government through the Microfinance Support Centre was going to inject money into SACCOs as the Minister of Microfinance had promised them, this has not been the case because the association couldn’t collateral security asked by the MSC.

The State Minister for Finance, Planning and Economic Development (Microfinance), Kyeyune Haruna Kasolo while commenting on the Presidential initiative to promotes Agro-Industrialization for Local Economic Development (AGRILED) in a phone interview said  he directed interest rates for  all loans disbursed by Microfinance Support Centre not to exceed 9% per year.

“The Uganda Micro Finance Support Centre must extend affordable credit to SACCOs, farmers, entrepreneurs and other players in AGRILED programmes at an interest that does not exceed 9%,” he said.

The Tier 4 Microfinance Institutions and Money Lenders Act 2016, which came into force on July 1, 2017 requires lending institutions to apply for licenses.

It stipulates the interest to be charged on loans, repayment mode and the right to early repayment. It also requires money lenders to issue a receipt and keep records of every repayment on a loan.

The law also provides for the establishment of: The Sacco Stabilization Fund, to which an equivalent of 0.5 per cent of the total assets of the Sacco is contributed; a Sacco Savings Protection Fund and a Central Financing Facility to license money lenders.

The World Bank Group report on Uganda’s economic update fact sheet 2017 indicates that  the challenge and gaps facing financial inclusion in Uganda includes the high cost of credit as a major constraint and that only a very small proportion of Ugandan businesses and households have access to a bank loan. The report adds that the Interest rates often range between 22 and 25% of the total value of the borrowed amount which its states will cause many people to shy away from loan products.

 

Business Top Banks Choking On Loan Defaulters Revealed

Uganda’s banking sector continues to recover from turbulent times as witnessed by the increase in profits, lending, customer deposits as well as a reduction in Non-Performing Loans (NPLs) and bad loans written off.

According to the Bank of Uganda (BoU), the ratio of NPLs to total loans in the banking industry reduced from 5.6% as at the end of 2017 to 4.4 percent as at the end of September 2018.

The improvement in the banking sector is largely attributed to increased economic growth in 2018.

However, some banks continue to choke on high NPLs. According to BoU, NPLs are deemed too high when the ratio (of NPLs) to loans is above 5%.

Business Focus exclusively analysedall the 24 commercial banks to rank banks with largest NPLs basing on the 2018 financial statements. Citibank and Bank of India recorded nil NPLs while Stanbic didn’t indicate its NPLs.

Excluding the three banks, total industry NPLs reduced to Shs388.24bn in 2018, down from Shs577.73bn recorded in 2017.

With a ratio of 23.7%, Commercial Bank of Africa tops banks with largest NPLs. Its NPLs stand at Shs20.4bn as of 31st December 2018 while loans advanced to customers stood at Shs85.85bn.

It is followed by Tropical bank whose NPLs ratio to loans is 17%. It recorded Shs21.93bn in NPLs in 2018 while its loans to customers stand at Shs128.73bn as of December 2018.

In 3rd position is NC Bank whose NPLs ratio to loans is 12.1%. It recorded Shs17.4bn in NPLs in 2018 against Shs143.7bn of loans advanced to customers.

Ecobank comes 4th with 7.8% ratio of NPLs to loans. It recorded Shs10.3bn in NPLs in 2018 against Shs131.6bn of loans advanced to customers.

With a NPLs ratio of 5.8%, dfcu bank is the 5th bank with largest NPLs.

It recorded Shs80.8bn in NPLs in 2018 against Shs1.39 trillion in loans advanced to customers.

Other banks that make up the top 10 banks with huge NPLs are Guaranty Trust Bank (4.75%), Barclays (4.59%), Exim Bank (4.084%), Housing Finance (4.038%) and Orient Bank (3.95%).

Check out our table to see where your bank lies in as far as banks with largest NPLs in Uganda are concerned.

 

Background to High NPLs In Uganda

Prior to the 2011 general elections, Uganda’s banking sector was generally stable and promising.

This was after new banks including Ecobank, Equity, KCB, United Bank for Africa and Global Trust Bank entered the Ugandan market at around the same time.

However, the 2011 election expenditure resulted into unprecedented inflation that crossed the 30% mark.

And in a move aimed at controlling the runway inflation, the Bank of Uganda (BoU) introduced a Monetary Tool called Central Bank Rate (CBR), a benchmark lending rate for commercial banks.

The CBR rose to over 20%, a move that saw commercial banks increase interest rates to over 30%.

Coupled with slowed business activity, this state of affairs resulted into many borrowers defaulting their loans, leading to increased industry Non-Performing Loans (NPLs) and write-offs.

Consequently, several banks recorded losses and others realized a reduction in profits.

It is therefore not surprising that industry NPLs increased to Shs529.3bn in 2013, up from Shs395.2bn in 2012.

It is also worth noting that industry NPLs have remained high since 2011, owing to the fact that economic recovery has been slow.

According to the World Bank, Uganda’s economic growth has averaged 5% in the last decade.

Additionally, still in 2011, the Shilling also hit a record low of 2900, further complicating business. The Local Unit has since been weakening against all major currencies. For the most part of 2018, it has been averaging 3700.  

Apart from the domestic situation, the Civil War in South Sudan which started in 2011 has also had far reaching effects on the Ugandan economy.

A number of traders and businessmen who had taken bank loans found it difficult to service their loans, resulting into increased NPLs.

The above factors explain why a number of banks and companies have collapsed. In 2012, BoU took over the National Bank of Commerce over poor performance and in 2014; Global Trust Bank was also taken over after failing to become economically viable.  

The latest bank to be taken over by BoU is Crane Bank in October 2016. This was after its NPLs increased by 122.9% in 2015. The bank’s NPLs increased to Shs142.3bn in 2015, up from Shs19.36bn in 2014.

The high NPLs saw Crane bank record a loss of Shs3.1bn in 2015, down from a net profit of Shs50.6bn in 2014.

It is also important to note that a number of companies, many of which had borrowed money from banks, became financially distressed in 2016, thus seeking government bailout.

 This was after they had failed to pay back their loans and their properties were up for sale (auction) by banks.

However, Bank of Uganda (BoU) says NPLs have significantly reduced, pointing to the recovery of Uganda’s economy.

It also points to a brighter future for the banking sector.

The ratio of NPLs to total loans in the banking industry reduced from 5.3 percent at end March 2018 to 4.4 percent at end of June 2018. The CBR has also since been reduced to 9% and some banks have reduced their prime lending rates to as low as 17%.

 

Business Top Banks Choking On Loan Defaulters Revealed

Uganda’s banking sector continues to recover from turbulent times as witnessed by the increase in profits, lending, customer deposits as well as a reduction in Non-Performing Loans (NPLs) and bad loans written off.

According to the Bank of Uganda (BoU), the ratio of NPLs to total loans in the banking industry reduced from 5.6% as at the end of 2017 to 4.4 percent as at the end of September 2018.

The improvement in the banking sector is largely attributed to increased economic growth in 2018.

However, some banks continue to choke on high NPLs. According to BoU, NPLs are deemed too high when the ratio (of NPLs) to loans is above 5%.

Business Focus exclusively analysedall the 24 commercial banks to rank banks with largest NPLs basing on the 2018 financial statements. Citibank and Bank of India recorded nil NPLs while Stanbic didn’t indicate its NPLs.

Excluding the three banks, total industry NPLs reduced to Shs388.24bn in 2018, down from Shs577.73bn recorded in 2017.

With a ratio of 23.7%, Commercial Bank of Africa tops banks with largest NPLs. Its NPLs stand at Shs20.4bn as of 31st December 2018 while loans advanced to customers stood at Shs85.85bn.

It is followed by Tropical bank whose NPLs ratio to loans is 17%. It recorded Shs21.93bn in NPLs in 2018 while its loans to customers stand at Shs128.73bn as of December 2018.

In 3rd position is NC Bank whose NPLs ratio to loans is 12.1%. It recorded Shs17.4bn in NPLs in 2018 against Shs143.7bn of loans advanced to customers.

Ecobank comes 4th with 7.8% ratio of NPLs to loans. It recorded Shs10.3bn in NPLs in 2018 against Shs131.6bn of loans advanced to customers.

With a NPLs ratio of 5.8%, dfcu bank is the 5th bank with largest NPLs.

It recorded Shs80.8bn in NPLs in 2018 against Shs1.39 trillion in loans advanced to customers.

Other banks that make up the top 10 banks with huge NPLs are Guaranty Trust Bank (4.75%), Barclays (4.59%), Exim Bank (4.084%), Housing Finance (4.038%) and Orient Bank (3.95%).

Check out our table to see where your bank lies in as far as banks with largest NPLs in Uganda are concerned.


Background to High NPLs In Uganda

Prior to the 2011 general elections, Uganda’s banking sector was generally stable and promising.

This was after new banks including Ecobank, Equity, KCB, United Bank for Africa and Global Trust Bank entered the Ugandan market at around the same time.

However, the 2011 election expenditure resulted into unprecedented inflation that crossed the 30% mark.

And in a move aimed at controlling the runway inflation, the Bank of Uganda (BoU) introduced a Monetary Tool called Central Bank Rate (CBR), a benchmark lending rate for commercial banks.

The CBR rose to over 20%, a move that saw commercial banks increase interest rates to over 30%.

Coupled with slowed business activity, this state of affairs resulted into many borrowers defaulting their loans, leading to increased industry Non-Performing Loans (NPLs) and write-offs.

Consequently, several banks recorded losses and others realized a reduction in profits.

It is therefore not surprising that industry NPLs increased to Shs529.3bn in 2013, up from Shs395.2bn in 2012.

It is also worth noting that industry NPLs have remained high since 2011, owing to the fact that economic recovery has been slow.

According to the World Bank, Uganda’s economic growth has averaged 5% in the last decade.

Additionally, still in 2011, the Shilling also hit a record low of 2900, further complicating business. The Local Unit has since been weakening against all major currencies. For the most part of 2018, it has been averaging 3700.  

Apart from the domestic situation, the Civil War in South Sudan which started in 2011 has also had far reaching effects on the Ugandan economy.

A number of traders and businessmen who had taken bank loans found it difficult to service their loans, resulting into increased NPLs.

The above factors explain why a number of banks and companies have collapsed. In 2012, BoU took over the National Bank of Commerce over poor performance and in 2014; Global Trust Bank was also taken over after failing to become economically viable.  

The latest bank to be taken over by BoU is Crane Bank in October 2016. This was after its NPLs increased by 122.9% in 2015. The bank’s NPLs increased to Shs142.3bn in 2015, up from Shs19.36bn in 2014.

The high NPLs saw Crane bank record a loss of Shs3.1bn in 2015, down from a net profit of Shs50.6bn in 2014.

It is also important to note that a number of companies, many of which had borrowed money from banks, became financially distressed in 2016, thus seeking government bailout.

 This was after they had failed to pay back their loans and their properties were up for sale (auction) by banks.

However, Bank of Uganda (BoU) says NPLs have significantly reduced, pointing to the recovery of Uganda’s economy.

It also points to a brighter future for the banking sector.

The ratio of NPLs to total loans in the banking industry reduced from 5.3 percent at end March 2018 to 4.4 percent at end of June 2018. The CBR has also since been reduced to 9% and some banks have reduced their prime lending rates to as low as 17%.

 

Business Railway transport to ease trade between Uganda and Kenya

The establishment of a railway link between Uganda and Kenya is expected to reduce the cost of commodities through reduced transport expenses.

In 2017,Uganda and Kenyan governments embarked on a joint initiative to improve trade between the two countries beginning with establishment of a one border post in Malaba that has seen tremendous improvement in clearing of goods and persons.
Yet there are still some bottlenecks at the border .

The minister for Works and Transport Monica Azuba Ntege said the two governments have finalised talks to enable the move goods direct from Mombasa To kampala by rail.

According to the plan, goods will be transported using the standard gauge railway from Mombasa to Naivasha where they will be shifted to the meter gauge through Malaba as compared to the past where goods were transported by trucks.
She revealed that the Kenyan government has offered Ugandan land in Naivasha to establish a container port.

The two governments also committed to revamp the old meter gauge railway on either side to Naivasha where it will be connected to the standard gauge railway.

Yet like any other development, using the railway to transport goods will translate into reduced business for truck owners and drivers and could lead to unemployment.

The MP for Tororo county Fredrick Angura appealed to government to develop coping mechanisms for those whose livelihood will be affected by the new developments.

 

Business Equity Buys Four Banks Across Africa At Shs396 Billion

Equity Group Holdings (EGH) has announced plans to acquire banking assets of Atlas Mara in four African countries in a transaction to be done through shares swap.

This follows an agreement into the deal by Equity’s Board of Directors. Atlas Mara is a financial services company listed on the London Stock Exchange.

Equity expects to allot approximately 252,482,300 new ordinary shares. The monetary value of the consideration to be paid is the equivalent of approximately KShs10.7 billion (UShs396.8 billion).

“Board of Directors have agreed to the entry into a binding term sheet through a share swap to exchange certain banking assets of Atlas Mara in four countries for shares in Equity Group,” said James Mwangi (in featured photo), Equity Group Holdings CEO.

Details of the deal include a 62 per cent of the share capital of Banque Populaire du Rwanda, 100 per cent pf the share capital of African Banking Corporation Zambia, 100 per cent of the share capital of African Banking Corporation Tanzania and 100 per cent of the share capital of African Banking Corporation Mozambique.

Atlas Mara will become a shareholder in Equity Group Holdings.

 Kenya’s National Treasury has on several occasions declared its wish to see more banks coming together to form larger units that are more stable. And there have been a few voluntary mergers and takeovers including the pending finalising of a marriage between NIC Bank and Commercial Bank of Africa.

During the month of April, Kenya Commercial Bank announced an offer to take over the troubled National Bank of Kenya.

The Government holds majority stakes in both banks, a pointer to the deal being a State intervention to save the troubled lender.

If successfully completed, it will create an entity valued at more than KSh900 billion (UShs33.3 trillion).