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Why dfcu Bank profits are in free fall

DFCU bank registered a whopping a 51.6% drop in its 2018 profits after tax, which fell to UGX 61.7bn from UGX 127bn. (FILE PHOTO)

KAMPALA – dfcu Bank last year recorded a whopping 51.6% drop in its 2018 profits after tax, which fell to UGX 61.7bn from UGX 127bn.

The free fall in profits was attributed to the controversial takeover of Crane Bank, in which dfcu bank’s financial accounts showed a mega-decline in both costs and in revenue.

Despite the huge fall in profits, dfcu’s leadership insists that the bank will make profits in the year ahead.

The bank’s managing director Mathias Katamba, in an interaction with journalists and sector analysts last month said that they were not worried about the sharp decline in revenue for 2018.

Admitting that the year was unique, Mr. Katamba said the decline in profits and revenue resulted from the acquisition of Crane Bank assets.

DFCU Bank officials, Current MD, Katamba and former MD Juma Kisaame at the Bank of Uganda Probe (PML Daily PHOTO)

In 2018, the bank posted Shs61bn as total comprehensive income, far higher than the UGX.127bn recorded in the previous year, which had Shs119bn one-off income accruing from the purchase of Crane Bank.

Mr. Katamba said in 2018, the bank focused on ensuring the asset quality of their consolidated book, which reduced impairment expenses by 61% from UGX. 49bn in 2017 to UGX.19bn in 2018.

Troubled dfcu Bank, facing public scrutiny over the controversial takeover of Crane Bank Ltd a deal that was flagged non-transparent by the Auditor General and The Parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) also in the year lost top shareholders and managers including Mr. Juma Kisaame, who was in the spotlight following the controversial transaction that invited shareholder trouble for the institution.

The bank also lost Mr. Deepak Malik the Chief Executive Officer of Arise Holdings Ltd, which is dfcu Bank’s biggest shareholder resigned from the latter’s board of directors last year without giving reasons for his sudden action.

Mr Deepak Malik’s resignation came in the aftermath of pulling out of the bank by the Commonwealth Development Corporation (CDC), Britain’s oldest development finance institution.

Arise Holdings has 58 percent shares while CDC is dfcu’s oldest investor after jointly setting up the bank with the Government of Uganda in 1964.
CDC’s move came in the aftermath of the fallout from her partner’s takeover of Crane Bank with the transaction attracting industry scrutiny over transparency issues and its European shareholders in the spotlight.

 

CEO Arise Holdings Ltd, DFCU Bank’s biggest shareholder, Deepak Malik resigned from the Bank’s Board of Directors last year (FILE PHOTO)

Mr. Katamba who replaced Mr. Kisaame noted that customer deposits remained flat at Shs1.9tn for the period under review as the bank focused on a strategy of growing the current and savings deposits that area more cost-effective source of funding.

 

The strategy resulted into a 11% decline in the interest expense from Shs88bn to Shs78bn. Interest on government and other securities also declined from Shs98.8bn in 2017 to Shs65.5bn in 2018.

Non-funded income in terms of fees and commission increased by 29% from UGX 39.3bn to UGX. 51bn as the bank continued to harness the benefits of the investments in technology and growth in the customer base.

Total expenditure reduced from UGX. 350billion in 2017 to UGX. 326bn in 2018. But total assets reduced by 5% from UGX. 3.1tn to Shs2.9tn due to repayment of borrowed funds and subordinated debt.

This resulted in a 39% reduction in the bank’s interest expense from UGX. 44bn to UGX. 27bn.The bank paid out UGX. 22.6bn as tax, lower than UGX. 41.4bn remitted in 2017.

The bank recorded a jump in bad debts written off from UGX. 27bn in 2017 to UGX. 82bn in 2018. Mr. Katamba said that some of these loans were acquired from Crane Bank.

Mr. Katamba said they are working towards reducing the cost to income ratio currently at 79.5% [registered in 2018] to below 60%.

He said this will be done through strengthening agent banking where they already have 700 agents manning 10% of the total bank’s transactions. The bank aims to have 30% of its total transactions managed by agents in the next 12 months.

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