By our Business Correspondent (O.K) DailyNewsUg
Orient Bank, a leading commercial Bank in Uganda has launched Orient Bank Business Club, a financial literacy program. It was launched by Louis Kasekende, the Deputy Governor of Bank of Uganda. He was hosted by Mr. Julius Kakeeto, the Managing Director/CEO of Orient Bank.
Mr. Julius Kakeeto, the Managing Director/CEO of Orient Bank
Mr. Kasekende used the opportunity to address lingering questions and issues around interest rates.
If your business is stressed or you have failed to service your loan obligation or both, the problem is far from the high interest rates in the market, at least according to Louis Kasekende, the deputy governor of Bank of Uganda.
Kasekende has watered down the argument that the high interest rates are to blame for the financial distress that companies face today. Instead, he said that the high interest rates account for a small percentage of the bad loans in the banking industry.
“We [BoU] have done a recent review and the results of this review indicate that only 0.3 per cent of the non-performing loans (NPLs) as of March 2016 could be attributed to very high interest rates,” he said.
Kasekende made the remarks last week while presiding over the launch of Orient bank’s business academy, which trains entrepreneurs on how to manage and run a start-up company. Kasekende said Orient bank’s launch of the business academy for start-ups will bridge the gap in the financial market.
Moses Muhwezi (L), deputy principal of MUBS, Louis Kasekende (C), deputy governor of BoU, and Julius Kakeeto, the managing director of Orient bank
“SMEs fail to create a business plan which commercial banks hedge on to create a credit relationship with start-ups,” he said.
The academy comes at a time when some companies are seeking bailouts after struggling to service their bank loans. In June, some companies were said to be seeking a government bailout of about Shs 1.3tn. They pointed out that the prevailing high interest rates had run their companies down.
Already, some commercial banks had reported that their 2015 balance sheets had been hit hard by credit defaulters. For instance, in their financial results for the year ended 2015, Standard Chartered bank’s profit dipped by Shs 86.2bn to Shs 28.3bn, from 114.5bn registered in 2014.
Information from bank of Uganda indicates that NPLs increased from Shs 573.4bn in December 2015 to Shs 803.8bn in June 2016, largely on account of high interest rates and the then uncertainty that loomed ahead of the February elections.
The risk of increasing NPLs has seen some commercial banks slow down on private sector lending. This has further subdued economic activity, according to experts. Interest rates at one time in the last 12 months averaged 27 per cent, one of the highest in sub-Saharan Africa.
But Dr. Kasekende noted that the interest rates cannot solely be blamed for the companies’ woes. According to the study BoU conducted recently, Kasekende cited the diversion of funds by borrowers as a major contributor to the increase in bad loans and delayed payments by government to its suppliers. The other factor is businesses suffering from cost overruns and insufficient cash flows.
“If you look at those three reasons, they virtually account for 65 per cent of the NPL (non-performing loan) in our banking industry. So, interest rates are not the major cause of NPL,” Kasekende explained.
“At least 26 per cent of the businesses fail before they see their fifth birthday,” he said.
The findings of their study indicate that 28 per cent of Ugandans had started businesses in the last 24 months.
The findings from the central bank collaborate with a separate study conducted by Makerere University Business School (Mubs). Dr. Moses Muhwezi, the deputy principal at Mubs, says although Uganda was ranked among the top countries in entrepreneurship, more businesses continue to collapse due to poor management. Most small and medium enterprises fail to expand due to lack of succession plans, poor book-keeping, inability to separate business and personal financing, according to the report.
Mr. Julius Kakeeto, (Centre, seated) and his Management Team driving the bank forward. Orient Bank is managed by a team of competent professionals with diverse experience across several management disciplines, they are driven by the passion to position the bank as a pace setter in the banking sector.
Orient bank’s business academy, is one of the key strong initiatives introduced by Mr. Julius Kakeeto, the Managing Director/CEO of Orient Bank after he turned around the Bank. Under his stewardship, Orient Bank is committed to helping its customers achieve their business goals through idea sharing and networking. Orient Bank Business Club seeks to be the leading business club in Uganda, renowned for shaping business people into impact members of the Ugandan society