UT Bank, an indigenous finance house, has posted modest results for 2014 on the back of strong Small and Medium Scale Enterprises (SMEs) loans and the introduction of some reforms in its operations.

According to the bank’s published audited financial results for 2014, it recorded a 24-per cent increase in profit before tax from GH¢16.4 million to GH¢16.7 million.

The bank also grew its interest income by 20 per cent from GH¢187.9 to GH¢226.3 largely due to loans and advances despite the challenging macroeconomic environment that had an impact on the fortunes of SMEs.

The Chief Executive of UT Bank, Mr Prince Kofi Amoabeng, said the growth in non-funded income also remained strong, rising by 35 per cent from GH¢52.9 million to GH¢71.2 million on the back of increased trade transactions and an expansion of the forex product offering.

But the rise in Treasury Bill rates negatively affected the bank’s cost of funds, causing interest expense to rise by 33 per cent year-on-year, despite an improvement in the funding mix.
Organisational reforms

According to Mr Amoabeng, some of the organisational reforms undertaken last year were a major contributor to the rise in operating expenses.

The reforms included a redesign of the model into two main categories, namely Corporate Banking and Retail Banking; a re-alignment of job functions to cater for specific economic sub-sectors and niche markets and a development of specific product offerings aimed at addressing the growing complexity of consumers’ financial needs.

That, Mr Amoabeng said, was aimed at structuring the bank’s business model for the next stage of growth, which also required additional hiring of more staff as well as investing in training and resourcing.

Exposures to hard-hit sectors of the economy, such as oil, construction and agriculture sectors, adversely affected the bank’s asset quality and resulted in a rise in non-performing loans. Profit after tax grew 12 per cent from GH¢9.8 million to GH¢11 million.

The bank also posted a 31-per cent year-on-year growth in net loans and advances to customers from GH¢917 million to GH¢1.2 billion, in part due to a 15-per cent increase in loans disbursed and partly due to foreign exchange translations as a result of the depreciation of the cedi against the U.S. dollar.

Total assets grew at a slower pace due to a decrease in investment securities as UT bank exited some medium-term investments and disposed of some fixed assets.

Total deposits increased by five per cent from GH¢920 million to GH¢966 million following a conscious effort to reduce expensive deposits while growing cheap funds. The ratio of cheap to expensive deposits, therefore, increased from 31 per cent to 38 per cent. 
SME growth

Mr Kofi Amoabeng spoke passionately about the bank’s commitment to serve the SME sector in spite of unpredictable interest rates and a general economic instability and stated that “UT Bank has remained particularly focused on its objective to support the SME sector. This is the reason for our being and our area of expertise.”

He added that “the rising interest rates on Treasury Bills negatively impacted our cost of funds and eroded the benefits that should have been gleaned from the improvement in the CASA ratio from 31 per cent to 38 per cent. The year 2014 was also a year of consolidation for the bank’s organisational change strategy. We were able to pull all the pieces of the puzzle together to create the organisational structure we need for the next phase of our business growth and this in itself came with its own challenges and business disruptions, which also affected our revenue growth.”

He concluded that “UT Bank remains committed to overcoming these challenges so we can go back to the days of posting high returns for our shareholders.”
Way forward

The UT Bank boss said management had adopted a three-pronged approach to recovery; focusing on asset quality; and efficiency and human capital.

“We have set up a recovery department with the mandate to recover our non-performing loan portfolio, while we review and improve our credit policies to ensure that the loan assets that we create, going forward, are of the best quality.

“Our strategy to improve efficiency is built on improving revenue through income diversification and reducing our cost of funds. In this regard, we will continue to grow our non-funded income by cementing the gains achieved in expanding our trade finance portfolio and increasing income from transactional banking obtained through the use of our e-banking platforms and other innovations,” he added.

Source: Graphic