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Trillionaire’s Club: Inside 8 Uganda’s top banks running UGX22 trillion assets

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The 8 biggest banks, in order of size- Stanbic Bank, Centenary Bank, dfcu Bank, Standard Chartered Bank, Barclays Bank, Bank of Baroda, Equity Bank and DTB control UGX21.7 trillion (USD5.8 billion) in assets- or 77% of the industry's total assets, valued at (UGX28.2 trillion).

The Pareto principle (also known as the 80/20 rule, the law of the vital few), according to Wikipedia, states that, for many events, roughly 80% of the effects come from 20% of the causes.

It has since become an axiom of business management that “80% of sales come from 20% of clients”.

RELATED: https://www.ceo.co.ug/2018-ugandas-19-banks-rake-in-ugx790bn-profit-5-banks-still-loss-making/

Mathematically, it is generally believed that even many natural phenomena have been shown to empirically exhibit such a distribution- also known as the Pareto distribution!

Centenary Bank’s MD, Fabian Kasi (right) and Craft Silicon’s CEO Mr Kamal Budhabhatti (left) at the April 2018 launch of CenteMobile- a self service and instant loan product that lends instant loans via mobile for as low UGX. 5,000 up to a maximum of UGX. 2 million. The bank which has over 1.4 million customers is Uganda’s 2nd biggest lender with over UGX1.53 trillion lent out in 2018.

The Ugandan banking industry does not seem to be any different.

Meet Uganda’s 8 banks that control nearly 80% of the industry.

In order of size, they are Stanbic Bank, Centenary Bank, dfcu Bank, Standard Chartered Bank, Barclays Bank, Bank of Baroda, Equity Bank and DTB.

All of them, with the exception of Centenary Bank are wither foreign owned or have majority foreign shareholders- but at least three; the top three are run by Ugandan CEOs.

UGX 21.7 trillion assets  

They eight banks, together control UGX21.7 trillion (USD5.8 billion) in assets- or 77% of the industry’s total assets, valued at (UGX28.2 trillion). All the other 16 banks, control only UGX6.5 trillion in assets, or 23% of the industry.

USD5.8 billion is equivalent to 21% of Uganda’s GDP estimated at USD27 billion in 2018.

The big asset growth was driven by increased lending, buoyed by reduced interest rates. Uganda’s 8 largest banks together command 78% of industry lending, and in 2018, increased their loan portfolio by 12.8% (UGX1.1 trillion) from UGX8.8 trillion to UGX9.9 trillion. Stanbic Bank, topped the big lenders club, having lent out UGX2.5 trillion in 2018 (19.7% market share). At UGX2.5 trillion lent out in 2018, Stanbic bank nearly lent out more money than all the other 16 banks combined- that lent out UGX2.8 trillion altogether.

In 2018 alone, the 8 giants, added UGX1.13 billion to their assets, accounting for 74% of the industry’s new assets valued at UGX1.53 trillion.  

DO NOT MISS: https://www.ceo.co.ug/money-men-the-8-gentlemen-who-control-77-of-ugandas-banking-industry/

Stanbic, the largest of them all, although it registered a UGX11.1 billion decline in assets, remained the country’s largest bank with a humongous UGX5.4 trillion in assets or 19.1% of total industry share.

To demonstrate the top-heavy structure of the Ugandan banking industry, Stanbic, the No.1 bank in assets (UGX5.4 trillion), has 87 times more assets than ABC Capital Bank, the 24th bank, which in 2018 had UGX61.7 billion!

Follow tweet and link above for a related story about Uganda’s most powerful bank CEOS.

In the No.2 position is the church-owned Centenary bank that in 2018 saw its assets grow by 17.2%, from UGX2.7 trillion to UGX3.2 trillion. Centenary bank controls 11.3% of the market share.

Standard Chartered Bank, in the 3rd position, controls UGX2.92 trillion in assets (10.4% market share) closely followed by dfcu Bank in the 4th position, with UGX2.88 trillion (10.3% market share).

Barclays, in the 5th place, controls UGX2.8 trillion worth of assets and 9.9% industry share.

Bank of Baroda and DTB Uganda in the 6th and 7th position, control UGX1.7 trillion and UGX1.6 trillion respectively, representing 6.1% and 5.7% market share.

Equity Bank, which entered the trillionaires club in 2017, having notched UGX1 trillion in assets then, in 2018, saw their assets increase by a further 14.3% or UGX147.1 billion, closing 2018 with UGX1.2 trillion and a market share of 4.2%.

Big lenders club

Together 8 banks command 78% of industry lending, and in 2018, increased their loan portfolio by 12.8% (UGX1.1 trillion) from UGX8.8 trillion to UGX9.9 trillion.

Again Stanbic Bank, tops the big lenders club, having lent out UGX2.5 trillion in 2018 (19.7% market share). At UGX2.5 trillion lent out in 2018, Stanbic bank nearly lent out more money than all the other 16 banks combined.

Although there was a general fall in the cost of deposits from an average 3.48% in 2016 to 2.79% in 2017 and finally 2.26% in 2018, the industry continued to see a growth in deposits. Between 2017 and 2018, deposits grew by 8% from UGX18.2 trillion in 2017 to UGX19.6 trillion. The big 8 controlled 78% of the industry deposits.

The 16 banks lent out UGX2.8 trillion altogether.

In the 2nd position is Centenary bank with UGX1.5 trillion and dfcu Bank with UGX1.4 trillion in the 2nd and third positions. Standard Chartered bank, Barclays and Bank of Baroda come in the 4th, 5th and 6th positions respectively, with UGX1.3 trillion, UGX1.2 trillion and UGX757.2 billion lent out in 2018.

Equity Bank and DTB bank are in the 7th and 8th positions respectively, having lent out UGX699.8 billion and UGX534.2 billion respectively

Customer deposits

The 8 banks in 2018 also run 78% of industry deposits, having grown their deposits portfolio by 7.2% or UGX1 trillion from UGX14.2 trillion to UGX3.9 trillion.

Again Stanbic, Centenary Bank, dfcu Bank, Standard Chartered Bank, Barclays Bank, Bank of Baroda, DTB Uganda and Equity bank are the leaders in that order.

The Managing Director Barclays Bank, Mr. Rakesh Jha poses for a photo with fellow industry captains and diplomats at a Johnnie Walker whisky mentor-ship. The event, part of the Barclays Bank Consumer Rewards Program in partnership with Uganda Breweries’ Johnnie Walker Brand, attracted key stakeholders such as the US Ambassador to Uganda Deborah Ruth Malac, Indian High commissioner Shri Ravi Shankar, NSSF MD Richard Patrick Byaruhanga, South African High commissioner Prof.Maj. Gen Solly Mollo among others. The big 8, of which Barclays is among, picked up a fresh UGX1 trillion in 2018.

Stanbic, the biggest in deposits, took in a fresh UGX271.4 billion in customer deposits (a growth of 7.5%), reaching 3.9 trillion or 20% of industry deposits, closely followed by Centenary Bank with UGX2.3 trillion.

Although dfcu saw a reduction of UGX8.1 billion in deposits during 2018, it easily remained in the 3rd position with UGX1.97 trillion.

The industry is so top heavy that the top 5 banks in deposits, have more deposits (UGX11.9 trillion) than all the other 19 banks combined, who have UGX7.7 trillion.

Most profitable

Although the big 8 experienced a UGX9.7 billion decline in profits, they still controlled 90% of industry profits- taking in UGX676.5 billion in 2018, down from UGX686.2 billion in 2017.

The decline was largely caused by dfcu Bank which saw a 52% decline in profit, from UGX127.6 billion in 2017 to UGX61.7 billion in 2018.

Barclays also saw a 4.2% decline in profit, from UGX72bn to UGX69 billion in 2018

Stanbic bank, again led the pack with UGX 215.1 billion net profit or 28.7% of industry profit share.

With the industry nearly fully recovered from the 2016 crisis when Non-Performing Loans to total gross loans reached a record-breaking 10.47%- NPLS in 2018 were according to BoU at 3.41 %, the industry looks set to maintain this stability onwards throughout 2019.

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Finance

Dfcu Bank confirms fraud; declines to give details

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Dfcu bank, has this evening confirmed that there was indeed fraud at the bank, but declined to divulge details of how much and who was involved, but said investigations were on going.

In a series of tweets, on their official twitter account (@dfcugroup), the bank said that “In May 2019, the Bank detected a case of fraud that was immediately reported to the police (CID HDQTRS GEF 604/2019) and investigations are ongoing.”

The bank which has been mum since the story was broken on Friday, went on to claim that the incident had “been grossly and maliciously misrepresented in an attempt to damage the reputation of the Bank, destabilise the banking sector and the economy in general,” but offered nor further detail on what had been misrepresented.

Several media houses that broke the story have reported that up to $2.6m was lost to hackers who breached the bank’s system, citing unnamed bank sources.

“The Bank takes these malicious reports seriously and reserves the right to take legal action as well as to refer the authors and disseminators to the relevant law enforcement authorities,” the bank threatened in one of the tweets.

The thread of tweets issued by dfcu Bank this evening

Dfcu Bank is one of the domestic systemically important banks (DSIBs) together with Stanbic Bank, Standard and Chartered Bank and fraud at the institution would be of national interest.

DSIB is a term used to describe banks whose business failures may widely impact the economy. These are deemed too big to fail because if their broad business networks across the economy.

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U.K. Regulator Fines Deloitte £6.5 Million Over Audit Misconduct

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The Financial Reporting Council, Britain’s regulator for accounting and audit, on Thursday, July 4th 2019, penalized and reprimanded Deloitte LLP, the global auditing giant, and one of its partners for shortfalls in its audits of a subsidiary of a U.K outsourcing firm, Serco Group PLC.

Deloitte was charged £6.5 million ($8.2 million) in addition to a “severe” reprimand. The fine was however reduced to £4.225 million as part of the firm’s settlement. Deloitte was also made to pay £300,000 toward the costs of the investigation.

Deloitte’s audit-engagement partner, a one, Helen George was fined £97,000 in respect to the audit of Serco Geografix’s 2011 financial statements.

In addition, Deloitte was made to arrange for all its audit staff to “undergo a training programme (designed to the satisfaction of the FRC) aimed at improving the behaviour that is the subject of the Misconduct.”

“Deloitte and Ms. George failed to act in accordance with the fundamental principle of professional competence and due care,” the FRC said in a statement.

The fine relates to three offences of fraud and two of false accounting committed between 2010 and 2013 related to the reporting to the UK Ministry of Justice (MoJ) of the levels of profitability of Serco’s Electronic Monitoring (EM) contract.

On July 3rd 2019, following an admission of responsibility and a Deferred Prosecution Agreement (DPA) with the UK Serious Fraud Office (SFO), Serco Geografix Ltd (SGL) was also fined £19.2m together with £3.7m related to the SFO’s investigation costs. The fine reflects a discount of 50% as a result of Serco’s self-reporting, as well as its significant and substantial cooperation with the investigation. Additionally, Serco was made to compensate the UK Government in respect of the offences as part of a £70m settlement paid by Serco in December 2013.

The Financial Reporting Council has taken various actions against several audit firms and companies’ internal audit teams in recent months.   The FRC in their 2017/18 said that 72% of audits done by the 8 biggest audit firms required no more than limited improvements compared with 78% in 2016/17.

“We recognize and regret that our audit work on Serco Geografix Limited in 2011 and 2012 was below the professional standards expected of us,” a Deloitte spokeswoman said. The company said its quality processes have evolved since the audits in question were performed. “We have also specifically agreed with the FRC certain actions focused on learning lessons from the shortcomings in this audit work,” the Deloitte spokeswoman said, according to the Wall Street Journal.

Pressure mounts to split up the “big 4” accountancy firms over substandard work and conflict of interest

The Financial Reporting Council has taken various actions against several audit firms and companies’ internal audit teams in recent months.   

In June this year for example, FRC also fined PricewaterhouseCoopers LLP (PwC) and KPMG, two of the world’s largest “big 4” accounting firms £4,550,000 and £6 million respectively for audit breaches in the United Kingdom.

Amidst the improprieties, there is pressure mounting in the UK to split up the “big four” accountancy firms-  PwC, EY, Deloitte and KPMG.

The House of Commons business, energy and industrial strategy select committee- in November 2018, recommended that UK’s Competition and Markets Authority (CMA) should break up the “big four” so as to avoid a repeat of a string of serious audit failures that have deeply undermined public confidence in the profession.

Although CMA resisted the calls for the breakup of the “big four” yet, it said, this option could be revisited within five years if the profession does not improve.

The CMA instead said that in the face of “serious competition problems” in the sector, the UK government should pass new laws that force accounting giants to put “greater distance between their audit divisions and their more lucrative consulting operations, to prevent conflicts of interest”, according to the Financial Times.     

The FRC in their 2017/18 said that 72% of audits done by the 8 biggest audit firms required no more than limited improvements compared with 78% in 2016/17.

The 8 are: KPMG, PwC, Deloitte, Ernst & Young and BDO GT, Mazars and Moore Stephens.

While FRC noted problems at all the “big 4” firms, it singled out KPMG for the consistent poor quality of its work.  

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Gov’t ready to shake down BoU- Finance Minister

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COSASE and the Presidential Tripartite Committee have recommended a shakedown of BoU and the legal regime setting it up

After a long wait, the Minister of Finance, Planning and Economic Development (MoFPED) Hon. Matia Kasaija, has said that Government is ready to take action on the recommendations of Parliament on Bank of Uganda.

Mr. Kasaija was today quoted by Daily Monitor, Uganda’s leading independent daily saying that after the Parliamentary Public Accounts Committee on Statutory Authorities and State Enterprises (PAC-COSASE) made their recommendations, following a lengthy probe, and parliament had discussed and adopted the report, he had tasked the central bank to examine the findings and recommendations of the COSASE report and make a report to him, showing what actions they would take internally.

“We are moving, but I cannot give you the whole detail. We have received a report from Bank of Uganda showing the actions they have taken. But I cannot give you details on these actions too. The report was sent to me about three days ago,” Mr Kasaija is quoted, as having told Daily Monitor in a telephone interview.

The Hon Abdu Katuntu COSASE which faulted Bank of Uganda for mismanaging the takeover and sale of seven defunct banks, had among others recommended an amendment of critical clauses in the BoU Act as well as holding several BoU officials criminally liable.

Kasaija’s comments come on the back of another recently leaked Confidential Report of the Presidential Tripartite Committee to the President that also recommended an “urgent and comprehensive review” of what it believes is an archaic “legal regime governing the Bank of Uganda.”

“The Bank of Uganda Act Cap 51 was last amended in 1993, two years before the promulgation of the 1995 Constitution of Uganda. In the case of the Bank of Uganda by-laws established under Statutory Instrument 51-1, the situation is even worse as they were passed in 1968 and continue to be applied despite being inconsistent with the Constitution in some important respects such as the authority of the Governor versus the authority of the Board,” reads part of a leaked Confidential Report of the Presidential Tripartite Committee to the President.

The committee recommended a “splitting or separation of the functions of the Governor and the Chairperson of the Board especially with regard to administrative matters”, noting that “most of the problems caused as a result of the Governor’s decision could have been avoided if the two roles were separate with no opportunity for the Governor to function as both Board and Chief Executive Officer.”

The Committee also recommended that a new additional position of Deputy Governor be created to unburden the governor, who they said was “too overloaded in terms of responsibilities” some of which risked “exposing the position of Governor to unnecessary controversies.”

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