[2008-05-05]  Barclays Uganda's Expansion Comes With 80 Percent Dip in Profit
The first details of the cost of Barclays Bank's ambitious expansion strategy in Uganda emerged last week with the release of the bank's figures for 2007, which showed a stunning 80 per cent drop in profit-before-tax, from Ush24 billion ($13.7 million) the previous year to Ush4.8 billion ($2.7 million).

The bank's management attributed the dip in performance to Barclays' two-part growth strategy involving expansion in geographical and market coverage, highlighted by last year's purchase of Nile Bank for a reported $24 million, and an ambitious drive to open new branches and tap the mass market for retail customers as well as small and medium-scale enterprises.


However, the figures also reveal a brutal effort by new managing director Charity Jinya to clean up a loan book that had became bloated with loans and advances that the bank believes might never be recovered.

The bank announced that it had spent Ush35 billion ($20 million) on expansion, increasing the number of branches from seven to 37 during the year and more than doubling its employee headcount from 200 to 770 permanent staff.

The bank's chief finance officer, Patrick Ayota, said this had increased the wage bill by 300 per cent.

Bank officials defended the expansion strategy, which also included a Ush13 billion ($7.4 million) spent on a new information technology platform, pointing out that the acquisition of Nile Bank had expanded Barclays' asset base by half to Ush750 billion ($428.5 million), with a similar increment in interest income.

Mr Ayota said that, "Nile Bank was a good buy, and if it were to be made today, it would still be good. It was a one-off deal financed with funds from both Barclays Bank Uganda and the Barclays Group.

Besides, our top line revenue was Ush93 billion ($53.1 million) up from Ush56 billion ($32 million) in 2006, a 56 per cent increase. So, overall, we are still in a strong position; we expect to recover our profitability next year."

Despite the external growth, the bank is moving to plug the holes exposed by a relatively lax lending regime; provisions for loans and advances whose repayment is in doubt increased by 395 per cent to Ush30.7 billion ($17.5 million), up from Ush6.2 billion ($3.5 million) in 2006, raising operating expenses by 120 per cent to Ush57.8 billion ($33 million).

The bank's new management has adopted an aggressive loans recovery strategy highlighted by the attempt, currently being contested in court, to attach a shopping centre in downtown Kampala over a $2.7 million loan owed to the bank by businessman and hotelier Joseph Behakanira.

The bank has also initiated several other lawsuits as it tries to call in precarious loans, and has forced the liquidation of the biscuit maker Aya Investments, Bee Natural Products Ltd, the country's top honey exporter, and a leading fish processing and export plant.

"The financial statement is very clear," a financial analyst who spoke to The EastAfrican said. "Barclays has huge non-performing assets; other banks have been expanding and installing IT systems as well, but their profits have been going forward."

The bank's struggle to marry its existing customers with those inherited from Nile Bank and teething problems with a new IT platform over the past couple of months have driven many customers away from the bank.


Source: Copyright © 2008 The East African.