dfcu Bank
Our initial stake of 55% in Dfcu Limited (“Dfcu”) was acquired from our shareholders at the time Arise was formed. In 2017, Dfcu Bank acquired some assets and liabilities of Crane Bank Limited (under administration) from the Bank of Uganda. To complete the acquisition, we provided Dfcu with a USD 50mn bridge loan to capitalise the bank. Subsequently, USD 35mn of the bridge loan was converted by a rights issue by Dfcu, and as a result, our shareholding increased to 58.7%.
Country Overview
Uganda is a landlocked country in East Africa with a population of approximately 45 million people. The country has a diverse economy, with agriculture, services, and industry being the major sectors. Uganda’s GDP was estimated to be around USD 33.7bn in 2020, with a growth rate of 3.3%. The country has seen steady economic growth in recent years, averaging about 6% yearly since 2016. Agriculture is the backbone of Uganda’s economy, employing over 70% of the population and contributing over 20% of the country’s GDP.
The major crops grown in Uganda include coffee, tea, cotton, maize, beans, and bananas. The country is also a significant exporter of coffee and tea. The service sector is the largest contributor to Uganda’s GDP, accounting for over 50% of the country’s economy. The major sub-sectors include tourism, financial services, and telecommunications. The food processing, textiles, and chemicals industries account for around 25% of Uganda’s GDP. The country also has a growing oil sector.
Banking Sector Overview
Uganda’s banking sector comprises commercial banks, microfinance institutions, credit institutions, and other financial institutions. The industry is regulated by the Bank of Uganda. According to data from the Bank of Uganda, as of September 2021, 24 licensed commercial banks were operating in the country. These banks had a total asset base of UGX 35.9tn (approximately USD 9.4bn) and total deposits of UGX 27.7tn (approximately USD 7.3bn).
The banking sector’s non-performing loan (NPL) ratio stood at 5.3% as of September 2021, slightly higher than the 4.8% recorded in the same period in 2020. The increase in NPLs is attributed to the effects of the COVID-19 pandemic on the economy, which has resulted in reduced business activity and increased credit risk.
In terms of profitability, the banking sector recorded an after-tax profit of UGX 496.5bn (approximately USD 130.5mn) in the first half of 2021, compared to UGX 388.3bn (approximately USD 102mn) recorded in the same period in 2020.
The government of Uganda has implemented various policies to promote financial inclusion and expand access to banking services, particularly in rural areas. This has led to increased competition among financial institutions and improved access to financial services. Overall, the banking sector in Uganda remains stable and is expected to continue growing, supported by a stable political environment and a robust economy.
Historical Financial Performance
Following the initial benefits of the acquisition in 2017, where the balance sheet almost doubled year on year, the balance sheet of dfcu has experienced moderate growth represented in the 5-year CAGR of 1%. This was largely attributable to slow growth in net loans.
Current Financial Performance
Dfcu’s total income dropped 4.1% to UGX 431.5bn (USD 116.6mn) from UGX 450.1bn (USD 239.4 mn) in 2021. Interest incomes were down 3.2% to UGX 343.4 bn (USD 92.8mn), while non-interest revenue fell 7.6% to UGX 88.1bn (USD 23.8mn). Operating costs increased 24.48% to UGX 228.4bn (USD 61.7mn) compared to UGX 183.5bn (USD 49.6mn) in 2021. Impairment on loans dropped 41.56% to UGX 88.19bn (USD 23.84mn) from UGX 148.36bn (USD 40.10mn) in 2021.
Pre-tax earnings increased to UGX 35.4bn (USD 9.6mn) relative to UGX 5.9bn (USD 1.6mn) in 2021. Dfcu’s after-tax profits jumped by 216.54% to UGX 29.48bn (USD 7.97mn) from UGX 9.31bn (USD 2.52mn) the previous year. The group’s return on assets increased to 0.9%, while the return on equity rose to 4.6% this year. Dfcu’s total assets increased 3.4% to UGX 3.2tn (USD 876.5mn) from UGX 3.1tn (USD 847.8mn), while total liabilities advanced 2.67% to UGX 2.61tn (USD 705.6mn) relative to UGX 2.5bn (USD 687.2 mn) in 2021. Customer deposits increased 5.6% to UGX 2.41tn (USD 651.5mn), while loan advances to customers reduced by 9.7% to UGX1.36tn (USD 367.96mn).
Development Impact
Since its inception, the bank has shown great commitment to the Agricultural sector to foster growth. Dfcu has directly supported farmer communities through tailored Agri-products and has put into place strategies, through its affiliates, to de-risk agriculture and make it an attractive enterprise.
Dfcu has partnered with the Rabobank Foundation and created the Agribusiness Development Centre (ADC) for F&A SMEs to not only grow in scale but to ensure the sustainability of their business. SMEs are coached in innovative agriculture practices and quality management. Dfcu’s focus on female business development saw 28 female agribusiness entrepreneurs graduate from the ADC’s Business Accelerator Programme in 2022.
Further to the above developmental impact support, dfcu has contributed toward developmental objectives in the following areas (2022 statistics):
Financial inclusion – The bank has 1.14 million mass retail customers, to whom loans amounting to UGX 256.3bn were disbursed, and deposits totalling UGX 121bn were held for this sector. It services its customers via 55 branches, 1876 agents, and its digital channels, where 306 576 customers have active accounts.
SME/MSME development – The bank has a complement of 265 845 clients in this sector, with loans disbursed amounting to UGX 221bn and deposits of UGX 879.7bn.
Female inclusion – The bank has 256 049 female customers, approximately 22.4% of its mass retail customers, yet this segment contributes 45% of loans (UGX 115bn) and 62% of deposits (UGX 75.6bn) in the sector.
Food & agriculture value chain – Despite dfcu having a limited number of F&A value chain clients, loans disbursed to the F&A sector amounted to UGX 185bn, a ratio of 13% of dfcu’s overall loan portfolio.