2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
2019 Annual Report Improving livelihoods of Ugandans
i www.udbl.co.ug 2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
Our Mandate “To operate as Uganda’s Development Finance Institution, particularly through interventions in priority sectors and in line with the Government of Uganda’s development priorities”
Purpose Statement “To improve the Quality of Life of Ugandans”
High Impact Goals
Reduce Poverty Build a Industrialize in Uganda – Sustainable Food Uganda – Create Uplift 500,000 System in Uganda Ushs 4 trillion in people out of – Relieve 1,000,000 industrial output poverty by 2024. people out of by 2024. hunger by 2024.
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Table of Contents
Minister’s Company Governance Foreword Overview Pg30 Pg03 Pg09
Operating Sustainability Financial Environment Report Sustainability Pg59 Pg64 Pg107
Human Financial Capital Statements Pg113 Pg117
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Definitions
Value of Output: This is the measure of total economic activity in the production of new goods and services in an accounting period for the UDB funded projects. It is a much broader measure of the economy than the gross domestic product (GDP), which is limited mainly to final output (finished goods and services).
Tax contribution: Refers to the annual direct or indirect taxes paid by funded projects. These include corporation tax, PAYE, VAT (18%), customs taxes, etc.
Foreign exchange earnings: Refers to the foreign currency generated by funded projects expressed in Uganda Shillings equivalent. The foreign currency generated includes earnings arising from the export of goods and services
Jobs created and maintained: Refers to the total number of permanent and temporary workers employed by funded projects and are paid a wage or income.
Profit for the year (Ushs): Annual income statement profit attributable to ordinary shareholders, minorities and preference shareholders.
Earnings per share (Ushs): Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue
Return on average assets (%): Earnings as a percentage of average total assets
Net interest margin (%): Net interest income as a percentage of annual average total loans
Yield on Loans (%): Total Interest Income as a percentage of annual average total loans
Debt to Equity ratio (%): Total Debt as a percentage of Total Equity
Net asset Impairment ratio (%): Provision for credit losses per the income statement as a percentage of closing net loans and advances
Cost-to-income ratio (%): Operating expenses, excluding provisions for credit losses, as a percentage of total income.
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Abbreviations and Acronyms
AADFI - Association of African Development Finance Institutions ADFIMI - Association of National Development Finance Institutions in Member Countries of the Islamic Development Bank AfDB - African Development Bank AGM - Annual General Meeting BADEA - Arab Bank for Economic Development in African BARC - Board Audit and Risk Committee BCC - Board Credit Committee BSPC - Board Strategic Planning Committee DFI - Development Finance Institution E&S - Environmental and Social Management Framework EOSD - European Organization for Sustainable Development ERM - Enterprise Risk Management EU - European Union EVP - Employee Value Proposition EXCO - Executive Committee GCF - Green Climate Fund GDP - Gross Domestic Product GRI - Global Reporting Initiatives IDB - Islamic Development Bank IFRS - International Finance Reporting Standards MD - Managing Director MoU - Memorandum of Understanding NAADS - National Agricultural Advisory Services NARO - National Agricultural Research Organization NDP - National Development Plan NPA - National Planning Authority PSC - Private Sector Credit SDG - Sustainable Development Goals SME - Small and Medium Enterprise UBA - Uganda Bankers Association UDB - Uganda Development Bank Limited UNCDF - United Nations Capital Development Fund USHS - Uganda Shillings
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Foreword from The Minister of Finance, Planning and Economic Development
Strategic Plan 2020-24 addresses these emerging issues and is aligned to the aspirations of Uganda’s Third National Development Plan (NDPIII), the global Sustainable Development Goals, and the Paris Agreement on Climate Change. We are confident that the five-year strategy will guide the Bank in supporting the Government’s effort towards resource-based industrialization as a means of promoting inclusive growth and building a strong and sustainable economy. As, Government and shareholders, we want to renew our strong resolve to support UDB effort through increased capital injection and good stewardship.
As I conclude, I wish to recognize the valuable contribution made by the Bank’s Board of The 2019 Annual Report of for the year, notwithstanding Directors who has provided Uganda Development Bank (UDB) challenges in the global excellent support and guidance is published in accordance with environment; dominated by to management. I would also section 132 of the Company uncertainty and downside risks. like to appreciate the Bank’s Act 2012. The report provides a The global economy recorded customers, financiers, and summary of the operations and its lowest growth of the decade other stakeholders for the audited financial statements of in 2019, falling from 3.2% in 2018 trust, confidence and active the Bank for the year ended 31 to 2.3% as a result of protracted contribution and look forward to December 2019. trade disputes, high policy their continued support. uncertainty and a slowdown in The performance results Finally, let me record my domestic investment. presented in the report profound appreciation for the demonstrates UDB’s commitment Issues such as poverty & sincere and unstinted efforts put to sustain its renewed business vulnerability, digitization, rising in by the Bank’s Management and model and ability to continue inequality, climate change, Staff. to deliver both financial results growing environmental pressures, and solid socio-economic changing demographics and impact results. The Bank was youth unemployment continue successful in implementing its to present challenges and Matia Kasaija 2019 strategies and, in general, opportunities to the economy. achieved its intended objectives The Bank’s recently revised
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Key Priority Sectors
TOURISM AND HOSPITALITY
The Bank finances projects in the tourism sector geared towards enhancing INFRASTRUCTURE the number of tourist arrivals and AGRICULTURE The Bank offers creating a memorable INDUSTRY financial support experience for for infrastructural The Bank has tourists. Funding HUMAN CAPITAL The Bank development dedicated lines focuses on tourism DEVELOPMENT supports feasible extended to of credit at infrastructure such projects in the majorly local concessional as the development manufacturing content projects, terms for primary of accommodation Human Capital and agro- exploitation production, facilities in game Development processing of abundant processing and parks and other relates to sectors on renewable energy value addition in tourist destinations, increasing the competitive sources among agriculture. ecological sites, stock of a skilled terms. others. museums, heritage and healthy sites/cultural workforce centres, tourist to enhance stopovers, purchase production. This of specialized tourist encompasses the 1 transport facilities 3 sectors of Health 5 and equipment and Education. among others. 2 4
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The Bank’s Product Portfolio 1 3 Short Term Loans Long Term Loans
These are facilities with a tenure of 1 to 3 These are facilities with a tenure between 5 years. They are typically for the working capital and 15 years. They are typically projects with requirements of a qualifying business. More a large capital expenditure component to be specifically, they are intended to facilitate implemented over a relatively long period. Long key operational requirements that directly term loans are suited for large scale projects aid production such as the purchase of raw such as infrastructural development and others. materials and productive inputs. They normally Loan terms vary from project to project, complement a running or new project loan depending on the nature of the business. and are disbursed when the project is ready A grace period of up to 36 months may to commence operations, but stand-alone be considered and is determined by the facilities can also be considered. implementation schedule and project cash Short term loans may also be used to acquire flows. assets that can generate enough cash flows to service the loan over a tenure not exceeding 3 years. The facility may be accessed by both existing and greenfield projects. Loan terms vary from project to project, 4 Asset Finance depending on the nature of the business. The exact length of the tenure is determined by the project cash flows and the implementation The Bank facilitates the acquisition of schedule qualifying assets that aid production and/ or value addition in key sectors. The asset is the primary security for the financing. UDB undertakes to meet 80% of the asset cost and the borrower contributes 20%. The borrower 2 pays back over an agreeable period, ranging Medium-Term Loans from 3 to 8 years. A borrower can provide additional security as an alternative to the 20% These are facilities with a tenure of 4 to 8 years. contribution. This is evaluated on a case by These are typically intended for projects with a case basis. capital expenditure requirement for expansion, refurbishment, re-equipment, and new asset Funds can be accessed in local currency and acquisition. They can be extended to both new USD; Up to 8 years repayment period; Up to 3 and existing projects. years grace period Loan terms vary from project to project, depending on the nature of the business. A grace period of up to 36 months may be considered and is determined by the implementation schedule and project cash flows.
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5 7 Equity Investment Business Advisory Services
Equity investment is a mode of business The Bank’s Advisory Services function aims financing where UDB provides capital or invests to improve the business performance of our in a project in return for a shareholding in the clients to promote the sustainable growth of project on given terms. The project must fall SMEs in the priority sectors of the economy. within the Bank’s priority sectors. We offer tailored programs in governance, management, project-related technical matters, UDB will take not more than 25% shareholding; and financial management. The minimum investment is USD 100,000 or Ushs equivalent; UDB recovers its investment through a dividend, revenue sharing, share value appreciation and other means as may be prescribed in the investment agreements; 8 UDB will be a shareholder for a maximum of Project Preparation 10 years. Terms and conditions of exit after this period will be spelt out in the investment The project preparation function at UDB agreements; Equity investment may be offered aims to support projects from identification alongside debt (loan) or other financing through concept design, pre, and detailed arrangements feasibility studies, financial close to commercial The project may be either a going concern or a operations. The bank’s objective is to bridge start-up. Regarding start-ups, preference will be the gap between the project concept and given to innovative concepts deemed too risky bankability. This is with the intent to unlock for conventional financing but showing realistic investment opportunities to harness socio- prospects of profitability and positive socio- economic benefits for the country. economic impact. UDB’s highly skilled in-house team works in collaboration with local and international experts to deliver the following support services; project identification; Pre and 6 feasibility studies; technical assistance; financial structuring and sourcing and Trade Finance managing project preparation funds. The bank seeks to creatively address financing gaps in the flow of goods and services between different parties in the various trade and related value chains. This is mainly for raw material acquisition and export promotion. Our products are tailored to the unique requirements of each transaction. They include: Structured Trade & Commodity Financing Pre and Post shipment finance and Trade Service (Letters of Credit, Bank Guarantee, Bills on collection)
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Company Overview
UDB’s strategy is focused on the need to maximize development impact in key priority sectors as spelt out in the National Development Plan of Uganda through channeling resources to address the sector-specific constraints, achieving expected development outcomes, and ensuring the long-term sustainability of the Bank.
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Bank’s Footprint Approvals and disbursements
NORTH PORTFOLIO [23,946,527,578] PROJECTS [15] APPROVED [13,428,415,170] DISBURSED [11,541,368,784] [29,769,025,925] [23] WEST PORTFOLIO [56,833,686,017] PORTFOLIO PROJECTS [31,904,476,281] APPROVED DISBURSED
EAST PORTFOLIO [40,808,372,688] PROJECTS [5] APPROVED [33,484,800,000] DISBURSED [4,400,672,994] CENTRAL PORTFOLIO [233,182,308,445] PROJECTS [75] APPROVED [177,549,844,611] DISBURSED [138,196,890,539]
Central region includes the Kampala Metro Area that comprises of Wakiso, Kampala CBD and Mukono where majority of industries and business activities are located.
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Who We Are
About Uganda Development and expanding businesses Country’s strategic objective of Bank in these sectors; attaining high middle-income status by 2040. As a development b. Provide finance in the form The Uganda Development Bank Bank, it is recognized by the of short, medium and long Government that UDB is one of Ltd (UDB) was established by the term secured loans: Government of Uganda (GoU) to the key entities in implementing promote the country’s economic c. Acquire shareholding in the interventions outlined in development by undertaking viable businesses; and the NDPs, particularly those specific objectives stated in its that relate to the provision of mandate. These included: d. Make funds available for affordable finance to facilitate reinvestment by selling and catalyze private sector a. Profitably promote and any investment of the investment and support the finance viable economic company when and as growth and development of appropriate. development in Uganda SME’s. UDB is, therefore, a key by assisting in the player in promoting private establishment, expansion, The National Development sector development. and modernization of Plans (NDPs) identify priority key sectors as well as by sectors and key public and providing advice to clients private delivery partners that as it relates to establishing will drive the achievement of the
Vision Mission
“Preferred and trusted “Accelerating socio- development finance economic development services provider through sustainable for socio-economic financial interventions” development”
Our Values
Integrity: We promise and only promise what we can deliver. We do what we say we are going to do and are accountable for our promises. We value honesty and consistency in our words and actions. We earn trust by living up to our commitments and make decisions that are in the best interest of the Bank and our customers.
Commitment: We are devoted to being the best we can be. To achieve this, we place our customers at the center of everything we do. We consistently deliver on expectations and go the extra mile to get the job done. We approach everything with “It can be done” attitude.
Excellence: We deliver the highest quality and value possible through simple and relevant solutions.
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Our Strategy
Strategic Strategic Strategic Objective 1 Objective 2 Objective 3
Promote sustainable Enhance financial Strengthen human growth and remain sustainability & capital and a key player in funding to facilitate governance structures socio-economic the execution of our for sustainable development mandate performance Strategic Objectives Strategic
Strategic Strategic Strategic Initiative 1 Initiative 2 Initiative 3 • Optimize operating • Grow quality loan • Reduce loan losses efficiency book • Increase • Enhance employee • Improve customer profitability satisfaction engagement • Improve • Enhance • Improve compliance shareholder value stakeholder with policies, engagement procedure and • Grow the funding applicable laws • Enhance financing base solutions to meet client needs • Improve staff consistent with NDP Strategic Initiatives Strategic competencies and sector priorities bench strength
• Undertake work culture change initiatives within the Bank
Interest payments
Our Funding Model 1. Internally generated resources 2. Grants and administered funds
Capital repayments
Loan Funding These investments UDB is and loans result in funded through
Equity Funding Divident receipts
3. Government of Uganda capital contribution 4. Borrowings from development partners
Capital growth & 9 realization 2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
Our Business Model
OUR RESOURCES SUPPORT ACTIVITIES
HOW THE RESOURCE IS USED TO CATEGORY ACTIVITIES CAPITAL ENABLE OUR BUSINESS MODEL ACTIVITIES • Assessing the viability of business plans FINANCIAL CAPITAL DIRECTLY • Providing funding to • Capital contributions from RELATED TO • Extending new loans potentially viable businesses the Government of Uganda PROVISION • Making new equity • Principle and Interest OF FUNDING • Developing and funding repayments from loans investments projects in key priority sectors • Borrowings from • Repaying borrowings • Sourcing partners for development partners • Cover operating development projects • Dividends and capital expenses profits from equity investment ACTIVITIES • Providing non-financial • Fees from project support to entrepreneurs preparation and business SUPPORTING advisory services THE • Developing and managing DEVELOPMENT specialized funding IMPACT OF products to address specific SOCIAL CAPITAL • Sourcing transactions to development outcomes OUR BUSINESS • Network of entrepreneurs, finance • Undertaking sector and clients and project • Developing and co- economic research partners. investing projects • Participating in government • Government ties • Leveraging our balance and private sector • Other funders and sheet to increase the development initiatives development partners impact ACTIVITIES • Sourcing and managing loans • Assessing funding and other funds at the lowest HUMAN CAPITAL DIRECTLY applications possible cost to pass on these SUPPORTING • Our staff • Monitoring and benefits to our clients THE FUNDING managing our portfolio • Managing our portfolio and all other aspects of ASPECTS of loans and investments our business OF OUR to ensure that we collect BUSINESS principal, interest and INTELLECTUAL CAPITAL • Developing strategies for dividend payments the development of key • Industry-specific and priority sectors macro-economic research • Providing inputs to CROSS- • Assets and Liabilities • Knowledge gained through government policy CUTTING management our experience formulation SUPPORTING • Human capital management • Due-diligence, credit • Allows us to identify ACTIVITIES • Business technology granting, and post- and manage risk in the investment processes. businesses that we fund • Strategy and economic research MANUFACTURED CAPITAL • Improving our processes • Governance, compliance and legal services • IT infrastructure and • Connecting with our key systems. stakeholders • Enterprise risk • Corporate affairs • Monitoring the carbon • Procurement NATURAL CAPITAL emissions of projects we invest in and their • Business advisory • Upholds strict environmental policies environmental standards • Providing funding that reduces companies’ impact on the environment
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OUTPUTS DEVELOPMENT OUTCOMES
TURNOVER AND LOAN APPROVALS TURN OVER 2019 PROFITABILITY 2019 Ushs PROFITABILITY Ushs Ushs CUMULATIVE VALUE OF PROJECTS APPROVED FROM 2015 FINANCED 1.795Tn 177bn TO 2019 940.7 bn
LOANS DISBURSED Ushs DISBURSEMENTS FROM 2015 TO 2019 JOBS DIRECT AND INDIRECT JOBS IMPACT 583.4 bn CREATED 4,324 (2019); 8,400 (2018)
TRANSACTIONS APPROVED PRIORITY CUMULATIVE SECTORAL DISTRIBUTION OF FUNDING DISBURSEMENTS FROM SECTORS 2015 TO 2019 285 APPROVALS SUPPORTED 39% Agriculture & Agro-processing; 38% Manufacturing; 11% Infrastructure; EMPLOYEES 4% Human Capital; 3% Tourism; TRAINED 4% Other 2019 TRAINING COST AS 6% A % OF STAFF COST
TAX INCREMENTAL TAX CONTRIBUTIONS MADE Ushs 8.7 billion (2019); Ushs FUNDING RAISED Ushs CONTRIBUTIONS 14.8 billion (2018) VALUE OF FUNDING RAISED FROM 2015 TO 2019 377.8bn
SUSTAINABILITY INITIATIVES 2019 FINANCIAL TOTAL ASSETS 2019 CUMULATIVE NET OUTCOMES Ushs PROFIT AFTER TAX The Bank revised its strategy to include FROM 2015 TO 2019 486.4bn its sustainability agenda over the next Ushs five years. 36.3bn
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Our Strategy
UDB’s strategy is focused on the Our 5-year strategy is delivered address different aspects of our need to maximize development through annual business plans business model can be seen on impact by intervening in key that are reviewed every quarter page 22 of this report. priority sectors as spelt out in with the Executive Committee the National Development Plan and the Board. These reviews Focus areas for 2019 of Uganda through channeling take into account changes in the 2019 was the second year of resources to address the sector- operating environment and are implementation of the Bank’s specific constraints, achieving guided by robust discussions 2018 – 2022 strategic plan. The expected development outcomes, by the Board and the Executive Bank implemented several and ensuring the long-term Committee. Details of the pillars strategies in 2019 that included sustainability of the Bank. of our strategy and how they the following:
Focus Areas Key Achievements
Review of • Conducted a review of the bank’s operating environment and strategy. Premised appropriateness on the need to further embed sustainability, a new 5 year strategic plan for the of Business model bank was developed and will be rolled out effective 2020. and Strategy
• Implementation of various operational units in the Bank including project preparation, business advisory services, infrastructure finance and equity finance thereby expanding our product proposition. • Conducted an efficacy audit on the bank’s people structure with the view to ensure that the bank’s human resource is well organized to support implementation of the strategy; a new structure was developed and will be Organisational implemented in 2020. effectiveness • The Bank implemented its Innovation Program that aims to promote agile and adaptive business practices in the institution. • Implemented various initiatives aimed at developing the bank’s research capabilities – including developing the research framework, conducting specialised training and procurement of systems and tools. The medium term aspiration is to transform the unit into a centre of excellence.
• UDB continued its pursuit of accreditation under the Sustainability Standards Certification Initiative (SSCI), resultant from which a number of policies and processes were reviewed to ensure the Bank is adaptive to the standards. Embedding Sustainability • Nominated as a direct access entity for the Green Climate Fund. • Roll-out of the Environmental and Social (E&S) Risk unit as a pedestal for enhanced environmental and social risk governance management in the bank.
• The Bank achieved an Issuer Default Rating of B+ (with stable outlook) rating by Fitch Rating which renders credence to UDB’s ability to meet its credit Risk Management obligations. • The Bank also achieved an improved A+ rating underscoring UDB’s commendable adoption of the AADFI prudential guidelines.
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• Implemented a framework which establishes a blueprint of the UDB’s medium term fund-raising activities • Initiated and developed various funding relationships resulting in additional lines of credit including EIB (USD16 Million), Kuwait Fund (USD20 Million) and Funding Msingi. • Realised additional capitalization from the Government of Uganda amounting to Ush 83.7 billion as well as drew down Ushs 49.1 billion from the earlier available lines of credit.
• Developed and commenced implementation of a medium term digitization strategy of the bank which aims to improve efficiency, technologize the Bank’s Systems operations and leverage technology to improve the customer experience whilst also supporting our customers, partners to adopt the 4IR solutions. • Implemented various automations and IT projects in the Bank.
• Implemented various competency development programs including a technical assistance program under the auspices of African Development Bank. • Implemented various staff engagement interventions thereby sustaining a retention rate of 97%. People • Through a proactive resourcing approach, the bank maintained an optimal staff complement at above 95%, realising a growth in headcount from 59 to 67 staff, in line with the 2019 staff establishment. Relatedly, the bank rolled out an inaugural graduate apprenticeship program aimed at creating a talent feeder for various specialist skills.
The table below summarizes the performance against the 2019 targets and the targeted deliverables for 2019 that will drive the anticipated development impact.
Selected key performance indicator 2020 2019 2019 2018 2018 2017 2016 Target Target Actual Target Actual Actual Actual Ushs billions/%age
Funding raised 201 187 132.8 114 84 136 89 Gross loan portfolio 467 375 354.8 325 309 243 183 Loan approvals 304 299 256.4 232 258 167 120 Loans disbursed 217 187 183.9 139 155 95 57 CI with impairment 65% 65% 58% 65% 65% 61% 64% CI w/o impairment 50% 46% 55.2% 45% 45% 48% 47% Return on equity 3.3% 4% 3.7% 4% 4% 5% 4% Return on Assets 2.3% 2.5% 2.6% 3% 3% 3% 3% Customer Satisfaction score 80% 80% 78% 80% 70% 72% 62% Employee Engagement score 80% 80% 75% 80% 75% - -
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Strategic Outlook For Impact Goals that will guide Quality of life is about the its interventions in the priority general wellbeing of people. 2020 sectors of the economy. The The Bank’s focus on Improving Although the implementation Bank will mainstream cross- the Quality of Life of Ugandans of the 2018-22 strategic plan cutting priorities of climate will involve changing the social, was ongoing, a revision in the change, gender, environmental economic, health, educational Bank’s strategic direction was and social governance in its and environmental conditions necessitated by the need to align sustainability agenda. The which affect human development our planning cycle to that of Bank’s detailed interventions in the country. the National Development Plan, will be guided by separate sector embed the sustainability agenda strategies and strategies for within the Bank’s operations, all cross-cutting priorities that High Impact Goals and strengthen accountability for are critical for the achievement The Bank’s High Impact Goals development impact. of the High Impact Goals. The for the next five years will be as achievement of these goals Following the review, the Bank follows: will directly impact the SDGs redefined its strategy to cover related to hunger, employment, the period 2020 – 2024. The key gender empowerment & equality, outcomes from the review were: i). Reduce Poverty in Uganda environment and improved The Bank intends to uplift quality of life. • Main-streaming in the Bank’s 500,000 people above the strategy, the three pillars The three goals are cognizant of poverty line by 2024 through of sustainability i.e. social, the key aspects that define the poverty reduction programs economic and environmental; quality of life – incomes, jobs, geared towards agriculture and housing environment, health, and sector yield enhancement • Articulating the Bank’s education. initiatives; supporting the Purpose Statement and Also, the Government of Uganda, provision of sustainable water High Impact Goals (HIGs) will in the next financial year for crop production & livestock in line with its mandate as commence implementation husbandry; harvest and post- a Development Financial of the 5-year Third National harvest loss management; Institution. Development Plan (NDP III) fostering financial inclusion & access to financial services; whose goal and theme will be youth empowerment and The Bank’s “Increasing Household Income entrepreneurship development. and Improving Quality of life” and Sustainability Strategy The Bank will also support “Sustainable Industrialization interventions in the health and For the Bank to embrace and for inclusive growth, employment tourism sectors to the extent integrate the sustainability and wealth creation” respectively. agenda in its operations, The goals, therefore, are in that they contribute to poverty it developed sustainability alignment with the Government’s reduction. strategies built on three growth agenda. The Bank’s interventions will (3) pillars of economic, target locations within the environmental and social, country and related economic alternatively termed profits, Purpose Statement activities that shall impact planet, and people. UDB believes To strengthen the delivery of and transform the lives of the that resources are finite, and development impact, the Bank communities experiencing a effort should be made to use developed a Purpose Statement, high prevalence of poverty. them conservatively and wisely. which encapsulates the Bank’s UDB’s interventions to reduce To deliver its mandate and raison d’être: poverty, in general, will support the achievement of the address the causes of poverty Sustainable Development Goals while focusing on increasing “Improving the quality of life of (SDG’s) and the Third National agricultural yield by supporting Ugandans’’. Development Plan (NDPIII), the technology deployment on farms, Bank established three High reducing reliance on rain-fed
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agriculture and supporting the implement initiatives aimed at better production technologies, commercialization of agriculture. the development of select crop increase and ensure consistent and livestock value chains. The production and supply of The interventions in agriculture Bank shall promote Climate- agricultural raw materials will be along identified smart Agriculture (CSA) and for the agro-manufacturing value chains with the view of organic food production. The industries, and increase off- strengthening them to deliver principal goal of CSA is food farm employment opportunities the highest possible impact. security and development for Ugandan citizens especially The promotion of commercial while productivity, adaptation, the youth; manufacturing to agriculture through an integrated and mitigation are identified increase the country’s export value chain approach can change as the three interlinked pillars base and diversify it beyond the the incomes and hence the necessary for achieving this goal. agricultural produce/products; quality of lives of Ugandans as Interventions are thus essential and mineral-based industries many are reliant on subsistence to fund climate-resistant given the substantial minerals, agriculture which is vulnerable to agriculture initiatives as well such as limestone, clay gypsum, climate change. In addition, the as enhance and finance post- and marble which remains largely Bank will support the adoption harvest handling techniques. untapped. and use of alternative clean sources of energy such as solar The Bank will also support and wind as these sources are investments that enhance the more sustainable and affordable. food security of the country and the reduction of post-harvest losses related to the food system. The success of ii). Build a Sustainable Food Investments in silos and storage the Bank’s five- System for Uganda facilities will be prioritized. In year strategy Agricultural development implementing this five-year has tremendous potential to strategy, UDB will pay particular will be measured enhance food security while attention to areas with a high creating opportunities and prevalence of poverty and on the extent raising incomes for the poor, the food insecurity as both can be to which it majority of whom live in rural contagious. areas. UDB will use affordable transforms the finance solutions to support iii). Industrialize Uganda projects that enhance food quality of life security but may not attract Under this goal, the Bank shall of the Ugandan commercial funding due to implement its industrial sector perceived high risks in the sector. strategy targeting cottage, small, people. Also, through partnerships, medium and large size industries. UDB will support food safety The specific interventions will training for farmers. The Bank seek to address the challenges will support farmers in accessing in the sector with the view to information related to climate improve the industrial base changes and its impact on of the country, promote the weather. Agricultural advice adoption of 21st Century Industry delivered by mobile phone is one technologies that are clean and of the most effective methods climate-smart and increase the of sharing information and can share of manufactured outputs be expanded to include market as a percentage of GDP. information. The Bank’s intervention in To address challenges facing the the industry shall comprise food system in the country, the of investments in agro- Bank, through its agricultural industrialization to among financing strategy, shall others increased adoption of
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Graphical Presentation of Key 2020 Priorities and 5-Year Strategic Period
SUSTAINABILITY STRATEGY Goals
Build a Sustainable Food Reduce Poverty Industrialize Uganda System for Uganda
KEY RESULT AREAS
• Increased yields of selected value • Increased food • SME industrial development chains production and yields • Adoption of cleaner production • Sustainable Water for production • Increased support technologies/Climate Smart Industry for crop & livestock husbandry. for organic farming • Improved capacity of local contractors to and the adoption of • Increased access to medical undertake infrastructure development climate-smart farming services techniques • BTVET Institutions developed/rehabilitated • Reduction in post-harvest losses • Import Substitution & Export Development • Financial inclusion for 1,000 small resulting in increased foreign exchange holder farmers earnings • Youth skills and entrepreneurship • Increased participation of women in development industrial development • Tourism, hospitality and • Health services development through cultural heritage preservation & increased output value of medical supplies promotion
SELECT INITIATIVES • Develop and Implement • Organize and support • Develop and implement SME lending agriculture finance strategy smallholder groups strategy to drive the Bank’s investment in (crops/livestock) SME’s • Promote modern methods of production and preservation • Strengthen the specific • Facilitate the acquisition of modern energy of livestock feeds mash among crop/livestock value & resource-efficient technologies others chains • Support local contractors in the • Finance the development of • Develop and implement implementation of infrastructural projects modern small irrigation schemes concept paper on block • Finance the development/rehabilitation of farming to support • Development of harvesting BTVET Institutions to avail the relevant skills medium to large scale and post-harvest handling & training applicable to the industry sectors food production infrastructure (storage facilities, • Support the establishment and setup of equipment, and machinery) • Promotion of climate- factories to increase the supply of goods & smart techniques of • Improvement of systems and services farming including organic processes through digitalization farming and other e.g. weather prediction among • Support large export/import substitution practices that enhance others. drive agricultural sustainability. • Widening the outreach for the • Support investments of private industrial • Promote the use of farmer group financing model. parks and export free zones organic inputs e.g. • Develop and implement a gender strategy/ • Finance the development fertilizers, pesticides and rehabilitation of BTVET product • Offer advisory services in institutions that address specific • Support establishment & growth of women- the promotion of organic and critical needs of the country led/owned industries farming and priority sectors
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DEVELOPMENT IMPACT
Uplift incomes of 500,000 people Relieve 1,000,000 people Increase the value of industrial output by above $1.25 a day by 2024 of hunger by 2024 Ushs 4 Trillion by 2024
CRITICAL SUCCESS FACTORS Funding Innovation Operational Excellence
The Bank looks at raising US$ 500 Due to the increasingly The Bank shall pursue continuous million over the plan period through competitive nature of improvement throughout the organization debt and equity business, it has become by focusing on the needs of the customer, imperative for organizations empowering employees, and optimizing to embrace innovation existing processes. as a key ingredient in the achievement of their objectives.
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Managing our Key Risks & Opportunities
Anticipating and responding wide risk management (ERM) planning, business, and decision- to the Bank’s risks and framework and approach to making processes. The Board and opportunities is a fundamental managing risk exposures. management team continuously part of delivering on our This approach ensures that review the top risks to ensure an mandate and ensuring that we the Bank takes a holistic view appropriate understanding of the remain sustainable. The Board of the risks inherent in its Bank’s operating environment. is ultimately responsible for the strategy and operations and Below are the key risks monitored effective management of risks that the management of risks is by the Bank and the mitigating and has adopted an enterprise- embedded into the mainstream actions in place:
KEY RISKS RISK MITIGANTS
Strategic Risk – The possibility that • Monthly reviews by management and Quarterly reviews unforeseen opportunities or threats by the Board of performance vis-à-vis targets may render UDB strategy ineffective • Corrective action taken to address shortcomings noted or uncompetitive or that events or circumstances may occur which could hinder • Annual Board and Senior Management strategy sessions the ability of UDB to implement its strategy and successfully deliver on its mandate
Credit Risk – the risk of default on • Well-defined credit risk management policy and an obligations approved delegation of authority in place for approval of credit transactions. • Periodic board and management credit committee meetings are held to ensure that appropriate intervention strategies are in place to monitor the risk.
Operational Risk - The risk of loss resulting • Periodic review of key risk indicators from inadequate or failed internal processes, • Periodic risk and control self-assessments people and systems or external events • Ongoing skilling and competency building of staff • Up-to-date policy framework
Liquidity Risk - Risk of inadequate capital/ • Continuous review of alternative sources of funding funding levels to sustain the business and • Strategy, annual business plan, and five-year financial execute our strategic growth forecast reviewed annually and approved by the Board • Implementation of the treasury strategy and enterprise risk management framework.
Market Risk - Risk of an uncertain and • Continuous analysis of the market to assess the impact volatile macroeconomic environment of changes on the business
Compliance Risk – Non-compliance to laws • Dedicated compliance and legal functions and regulations • Compliance monitoring process is in place • Internal controls reviewed regularly • Project-specific reviews for each of the deals we finance
Reputational Risk – Failure to prevent • Implementation of communication and stakeholder and respond to reputational risk events engagement strategies impacting on UDB’s goodwill and reputation
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Organizational Structure
The Bank continued to implement Bank’s investments in projects design to commercialization. The the Board approved structure focusing on the priority sectors business units are supported with 6 departments, each headed as outlined in the country’s by 4 departments that provided by a Director. National Development Plans support in terms of: while the Credit Department Two of the departments manages the credit risk of • The legal aspects of comprising of Investments and transactions the loan portfolio. The Bank Credit are directly involved in continued to strengthen the • Strategy formulation transactions, focusing on all and implementation newly established project priority sectors and performing monitoring, research and preparation unit charged communications due diligence on businesses with the responsibility of applying for funding. The • Resource mobilization taking prospective project Investments Department • Business technology ideas through the respective comprises of professionals that services preparation cycle, right from prospect for and manage the • Risk management and identification through concept assurance
With the newly approved 2020 – 24 strategy, the Bank reorganized its operations to enable it to deliver on the sustainability agenda. The Board in December 2019 approved a new organizational structure to be implemented with effect from January 2020. 19 2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
Engaging with our environment for stakeholders to the public with information about share their feedback with us in the Bank’s role, socio-economic Stakeholders real-time and to build positive and financial performance as Our Stakeholder Engagement perceptions about the Bank. well as strategic direction moving Strategy is designed to support forward. The engagements held in 2019 the achievement of the Bank’s were very successful and enabled We have taken significant strategic objectives by providing us to attain critical insights steps towards making our a road map for engaging our into trends in the Development interventions strategic and Stakeholders. Finance space. They also kept us proactive and this has resulted The interventions we employ informed of the most pressing in a greater appreciation for our include Staff Engagement, Brand issues in the private and public role as a National Development awareness and Reputation sectors and therefore informed Finance institution as well as Building, Media Relations our business interventions enhanced visibility and a greater Management, Customer Relations making us more responsive and appreciation for the development Management, and Strategic relevant to our Stakeholders. A impact generated by the Bank. Relationship Development. series of high visibility activities Below are our Stakeholder Map These interventions have created provided us with excellent and a pictorial highlighting the a platform and an enabling opportunities to further furnish key Stakeholder Interventions held in the year 2019.
Stakeholders How we engage What we engage on Stakeholders’ contribution to value creation
Government Formal meetings; The bank’s Provides the link to ensure Policy discussions; developmental alignment of UDB with National Conferences; On-site role; long-term Development Priorities. visits sustainability; financial performance and Shareholder expectations
Employees Staff engagements Strategy, financial To enhance employees’ activities at numerous performance; people engagement and commitment level; training and development and as their efforts contribute to development needs training, code of our success. analysis; results conduct presentations; performance reviews; internal communication and staff surveys; social media platforms
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Stakeholders How we engage What we engage on Stakeholders’ contribution to value creation
Customers Customer surveys; Customer’s Their business provides the customer engagement needs support basis for our continued growth forums and (financial and non- We endeavor to understand our communication financial support); customers’ needs and enhance activities; social media Implementation our development impact platforms support (non- funding support); perceptions and expectations; Development impact
Development Formal meetings, Funding Provide financial resources Partners workshops, website, opportunities, required to sustain and grow reports; social media financial the business platforms performance, future prospects and organisational sustainability
Suppliers One-on-one meetings, Contract and service Suppliers provide the valued service reviews and agreements and expertise, products and presentations and bid performance. services required to maintain invitations our business and facilitate our growth
Community Project implementation; Investment in They are ultimately a key community surveys; social-economic beneficiary of our services communication development; access and they provide a deeper activities, corporate to basic services understanding of our social social activities and and local labour responsibility expectations, website. opportunities. including job creation and environmental impact
Media Media briefings; press Key strategic Raise public awareness of our conferences and initiatives; project strategy, products and services releases and print information; as well as our operational media; social media operational results. platforms and financial performances
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Stakeholder Engagement
Board Directors, members of staff of UDB and officials from the Ministry of Finance led by the Permanent Secretary/Secretary to the Treasury, Mr. Keith Muhakanizi during a Stakeholder meeting at the Ministry of Finance.
Dr. Frank Mentrup, Mayor of the City of Karlsruhe and Hon. Matia Kasaija, Gen. Caleb Akandwanaho, Chief Coordinator Operation Wealth Creation Minister of Finance during a delegates visit to Uganda. addressing guests at the UDB Rwenzori Business Clinic in Kasese.
Dr. Emmanuel Tumusiime Mutebile, Governor Bank of Uganda and Representatives from NIRSAL Nigeria, UDB Staff and representatives of the Mr. Arshad Rab, Chief Executive Officer European Organisation for Banking fraternity in Uganda at a training on de-risking the agricultural Sustainable Development and other dignitaries at a Stakeholders Meeting sector at the Protea Hotel Kampala. at the Central Bank of Uganda.
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Stella Kanyike, Manager Corporate Affairs making a presentation at the launch of the UDB Communication and Stakeholder Engagement Strategy at the UDB Head Office.
The Management team addressing the media during a press briefing Robert Schofield, Head of EIB’s Financial Sector Division covering announcing UDB’s Fitch Rating. Africa with Patricia Ojangole, Managing Director UDB at the signing ceremony for the EUR 15m line of credit.
Hon. Syda Namirembe Bbumba, Member of Parliament Nakaseke Hon. Matia Kasaija and Hon. Evelyn Anite , UDB Shareholders and Mr. District and Chairperson National Economy Committee addressing Felix Okoboi UDB Board Chairman at the Annual General Meeting at guests during a Stakeholder Engagement Meeting at Kampala Serena the Ministry of Finance. Hotel.
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Governance The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.
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Chairman’s Statement
hile global Strategy economic During the year under review, the growth Bank continued to operate under witnessed its the Board’s approved 5-year lowest rate strategic plan for the period in a decade, 2018 – 2022, which was premised falling from 3.2% in 2018 to 2.3% on the commitment to pursue as a result of protracted trade W 3 goals namely, to promote: disputes, high policy uncertainty sustainable growth; financial and a slowdown in domestic sustainability; and operational investment, the Ugandan excellence and governance. The scene provided an enabling Bank made significant strides environment for the bank to grow; in implementing this strategy the economy reported strong and has realized significant growth estimated at 6.3%, largely achievements within the first two Mr. Felix Okoboi supported by the expansion of -Board Chairman years of the strategy period. services - where growth averaged at 7.6%; industry with a growth While the implementation of this In 2019, the Bank’s Net rate of 6.2% and agriculture strategy was on-going, a revision achieving a 3.8% uplift. This was necessitated by the need Interest Income grew by environment facilitated the to align the Bank’s planning 17% while the post-tax bank’s growth, allowing it to cycle to that of the National profit also improved by 7%. continue to make a commendable Development Plan, embed all contribution towards improving pillars of sustainability within the the quality of life of Ugandans. Bank‘s operations and strengthen accountability for development The year 2020 brings with it impact. Accordingly, the Bank In implementing the various new opportunities and new has redefined its strategy for the interventions and initiatives to challenges. The COVID 19 global period 2020 – 2024, wherein the realize these goals, the Bank will pandemic is set to redefine focus of the bank, its Purpose ensure the effective integration societies and economies Statement and High Impact Goals of responsible environmental, around the globe, Uganda (HIGs) have been articulated. social and governance (ESG) included. UDB recognizes its considerations in all UDB pivotal role in the creation and In an effort to strengthen the investment processes and maintenance of a robust and delivery of development impact, decision making. resilient local economy during the Bank developed a Purpose this time and post-COVID 19. We Statement which encapsulates The Board is fully committed to are well positioned to support the Bank‘s reason for existence the successful implementation local businesses during these as “Improving the quality of of this Strategic Plan and rallies uncertain times, and I thus wish life of Ugandans’’. Similarly, the support of all stakeholders to reiterate our unwavering the Bank has determined three towards achieving this plan. commitment to this pivotal role. High Impact Goals to drive the Financial Sustainability and One undeniable lesson we have realization of its Purpose, Mission Good Corporate Governance already learnt from the pandemic and Vision which are: is that a focus on developing, In 2019, the Bank continued to a) Reduce Poverty in promoting and boosting benefit from strong financial Uganda local industrial capacity is an support from the Government imperative to national economic b) Build a Sustainable Food of Uganda and our development resilience. System for Uganda partners typified by a 37% and c) Industrialize Uganda 22% year on year growth in funding respectively.
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The Bank continues to take steps focus on quality communication, stakeholder confidence, support to achieve financial sustainability stakeholder engagement as well and good will of the Government by ensuring the prudent as public relations. of Uganda, to deliver the management of its balance expectations of its stakeholders. Furthermore, the Board launched sheet, enhancing revenue whilst the in-house innovation program optimizing its operating cost and Appreciation (“UDB Ideas”) under the theme diversifying sources of capital “Driving Socio-Economic On behalf of the Board of for the Bank. These actions have Development through Innovation Directors, I wish to convey our provided for a firm foundation for and Thought Leadership”. The sincere appreciation to all our a sustained improvement in the program will facilitate the Bank’s stakeholders for the support Bank’s performance against all the adaptability in a competitive rendered to the Bank. key parameters. and rapidly changing economy, Special thanks goes to the Bank’s In 2019, the Bank’s Net Interest by empowering the Bank’s staff shareholders, the Minister of Income grew by 17% while the to think outside the box and Finance, Planning and Economic post-tax profit also improved by adopt best practices to serve its Development, Hon. Matia 7%, from Ushs 9.49 billion to Ushs stakeholders more efficiently and Kasaija, the Minister of State for 10.14 billion. Relatedly, there was a thereby, create significant socio- Privatisation and Investment, 31% growth in the Bank’s assets to economic impact. Hon. Evelyn Anite and the entire 486.37 billion, supported by a 21% top management team at the Transformative Development growth in net loans and advances. Ministry of Finance, Planning and Outlook The impairment losses declined by and Economic Development for 82%. The Board is dedicated to continuously supporting the Bank The Board of Directors is fully ensuring the Bank continues in its initiatives towards driving committed to upholding the to deliver its mandate and the socio-economic development highest standards of Corporate attains its long-term aspiration agenda of this country. of catalyzing Uganda’s socio- Governance. In the year under I thank the Managing Director, economic transformation, review, the Board approved the her Management team and the keeping in line with the national amendment of the Strategic Plan staff for the progressive hard priorities as encapsulated in the and implemented various steps work through the years and I National Development Plans and towards improving the Bank’s look forward to their continued Vision 2040. To this end, the Bank governance environment. To commitment. this end, the Board amended continues to invest its resources all the Committee and Board in the key priority sectors of the To my fellow Directors, I Charters to enhance effective economy demonstrated by the appreciate your commitment, oversight. Additionally, the Board significant portion of the Bank’s oversight, good governance and conducted an evaluation of its loan book (73%), approvals (72%) consistent dedication towards performance for the year 2018 and disbursements (80%) being the Bank’s pivotal role in the and implemented resolutions that related to the agriculture and development of our Country. aim to enhance areas where the manufacturing sectors in 2019. Board’s performance required In 2020, the Bank will embark on improvement. The Board also implementing the new Strategic conducted a Board of Directors’ Plan 2020-2024. The Bank will skills assessment to establish align its resources, the operating the existing competencies and structure, policy framework and strategize on how best to enhance Mr. Felix Okoboi processes towards this strategy; Board Chairman the director’s skillsets. it will take advantage of the The Board also approved the achievements made thus far Bank’s Communications Strategy to improve its operations, and which aims to improve the Bank’s leverage its growing brand health,
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Board of Directors
Mr. Felix Okoboi Board - Ms. Patricia Ojangole Mr. Henry Balwanyi Ms. Silvia Angey Ufoyuru Chairperson Independent - Managing Director Magino - Independent - Independent Non- Non- Executive DIRECTOR Non-Executive Director Executive Director
Master of Engineering, M.Phil in Development Chartered Secretary, Master of Arts, (Architecture) Aachen Finance (cum laude), ICSA; LLB (Makerere); Economic Policy University of Technology; University of Stellenbosch Pg. Dip (Law Management, Master of Arts in Business School; Masters Development Centre); (Makerere); Bachelor International Studies, in Business Administration Member of the of Business University of Pennsylvania; from ESAMI; B.Com Institute of Chartered Administration, Master of Business Makerere University; Secretaries & (Makerere); Dip. Administration (Finance), FCCA; CPA; Member of Administrators- ICSA Computer Science University of Pennsylvania. the Institute of Internal of London UK-ACIS (Makerere); Dip. Auditors (IIA) Business Studies Age: 49 Appointed: 2018 Age: 56 Appointed: (Makerere) Age: 42 Appointed: 2018 2015 Directorship in other Age: 50 Appointed: 2015 institutions: Chairman, Directorship in other Roles currently Investment Committee of institutions:- Msingi EA held:- Head Legal & Directorship in other Yield Uganda Private Equity Ltd, New Vision Group and Company Secretary, institutions:- Board Fund; Managing Director ADFIMI. She also chairs the National Housing Member - Agency for CLB Capital Ltd. Management Board of the and Construction Accelerated Regional European Union-funded Company Limited. Development (AFARD) Other roles: Board Advisor START facility. 2016; Board of for National Social Security Committees: Trustees – Jonam Youth Fund; Apex Member of Committees: Member, Chairperson, Board Development Initiative; the Financial Markets Board Strategic Planning Audit and Risk Ex-Official Member of Development Committee of Committee and Board Committee the Uganda African Bank of Uganda. Credit Committee Peer Review Mechanism (APRM) National Governing Council. Committees: Chairperson, Board Strategic Planning Committee and Member, Board Audit and Risk Committee
Mr. Nimrod Waniala Mr. Francis Tumuheirwe Mr. John Ira K. Byaruhanga Independent -Non- - Independent Non- - Non-Independent/ Non- Executive Director Executive Director Executive Director
Masters in Banking & Master of Science Master of Public Finance for Development (Economics), Bradford Administration (Economic (Fin. Africa Foundation, University, United Policy Management), Milan); BSc. Econ Kingdom; Bachelor of Columbia University; BSc. (Makerere University) Science (Economics and Economics, Makerere Statistics), Makerere University Age: 68 Appointed: 2015 University Age: 47 Appointed: 2017 Directorship in other Age: 65 Appointed: 2018 institutions:- Board Roles currently held: Ag. Chairman, Uganda Export Directorship in other Commissioner, Tax Policy Promotion Board (UEPB), institutions: - Board Department, Ministry of since October 2016. Chairman Uganda Finance, Planning and Electricity Distribution Economic Development. Committees: Company Limited. Chairperson, Board Committees: Member, Credit Committee and Committees: Member, Board Strategic Planning Member, Board Strategic Board Audit and Risk Committee and Member, Planning Committee. Committee. Board Credit Committee
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Managing Director’s Statement running awarded a credit rating of B+ with a stable outlook. The rating and outlook portray UDB in good 4,343 stead amongst peers and New jobs created development partners and has had a positive impact on the Bank’s financing 23,970 prospects. The Bank also Jobs maintained achieved an improved A+ AADFI rating, once again 31% scooping an award of Best Growth in balance sheet Performing DFI among peers on the African continent.
• Main-streaming and Ms. Patricia A. Ojangole - Managing Director championing sustainability – Following its admission to the Sustainability Delivering UDB’s business unit that seeks to leverage Standards Certification strategy on existing opportunities Initiative (SSCI), the Bank to increase the level of 2019 marked the second year has gone beyond the infrastructure in the country. of implementation of UDB’s conventional environmental These have enhanced the Strategic Plan 2018-2022. The and social governance bank’s product suite and Bank’s overarching ambition frameworks and has main- are expected to grow their for the year was to consolidate streamed sustainability in overall contribution to the the gains previously registered a holistic manner as per business through 2020 and and set the stage for sustained the stringent requirements beyond. growth. Against this backdrop, of SSCI. Therefore, all decisions and actions at the Bank implemented various • Funding – The shareholders all levels are guided by the initiatives in support of this continued to honor their principles of sustainability aspiration and realized various commitment to capitalize making it the core of achievements. These include; the Bank and provided UDB’s business. Although a budgetary allocation interest in sustainable • Implementation of amounting to Ushs 103 financing is growing world specialized units in the billion in FY2019/2010. over, the sustainability bank – namely; project Leveraging on its equity, the transition in the financial preparation unit aimed Bank continued to engage system is not happening at increasing the stock multilateral and bilateral at the required scale. of bankable public and funders and closed the Given UDB’s experience private sector projects, year with a healthy external and leadership role in business advisory funding pipeline worth over sustainable finance, the services designed to USD 100 million. UDB is working with Bank especially support SME of Uganda and Ministry businesses with various • External ratings – At its of Finance to mainstream skills to increase the level follow up rating process holistic sustainability in the of business success and with Fitch Ratings, the Bank country’s entire financial infrastructure finance was for the second year
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sector. Together, it is taking in renewable energy in automation and 4IR this critical sector beyond solutions that can help in Germany, to enter the traditional corporate diversify the countries Ugandan market. Through social and environmental sources of foreign the above partnerships responsibility to holistic exchange among and programs, UDBL also sustainability where all others. Second, EOSD aims to industrialize financial institutions in the & UDBL are in active the country, make the country work towards the cooperation on national domestic industry same vision of creating a engineering roster competitive, innovative sustainable and prosperous under the “Reshaping and sustainable. Uganda. This process, if Industries for Sustainable implemented resolutely, Economy (RISE) Program”. The Bank, with the support will also lead to a resilient The objectives of of Food and Agricultural and profitable financial this program include; Organisation (FAO) and the sector that is aligned to Harnessing the power of European Union (EU) started the development needs of emerging technologies implementation of the Agrinvest the country. Moreover, it to achieve economic, Project whose impact will be an will support in significantly social and environmental enlarged and enhanced UDBL accelerating the fulfilment sustainability, support agricultural loan portfolio. This of UDB’s very purpose of building of local and enlarged portfolio will in turn existence (raison d’être), regional capacities for generate benefits for small- which is to improve quality enabling sustainable scale producers in terms of of life of Ugandans. industrialization and improved access to finance and remodelling of selected wider scope for sustainable • Creating value through industries for ensuring and profitable value chain partnerships – The Bank that they thrive in the investments. Ultimately, poverty in collaboration with era of Industry 4.0 and reduction, food security and rural European Organization for align their business job creation will be achieved. Sustainable Development models with the digital Relatedly, the Bank is being (EOSD) is involved in age and national supported by Alliance for a Green several joint initiatives development priorities. Revolution in Africa (AGRA) to as part of transitioning to Lastly, EOSD and UDBL improve its agriculture finance a 21st century economy. jointly commissioned the strategy, which should enable First, EOSD helped to Uganda Energy Sector innovative ways of supporting mobilize Euro 300,000.00 Brief, in partnership with the agriculture sector beyond the and developed a strategic the National Planning usual approaches. partnership between Authority. As a next Europe’s largest & step, an action plan on prestigious R&D institution affordable, reliable & Socio-economic “Fraunhofer Institute” sustainable energy for outcomes and impact Germany with “Makerere all Ugandans through generated University” Uganda. The specialized financial funding will be used to set products led by the UDB Resulting from Bank’s up a research institute in is being developed. interventions, several Makerere with the technical In addition, EOSD is development outcomes were support of Fraunhofer. mobilizing technology realized during 2019; these The center is expected companies, including include: to develop technologies those which specialize
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• Jobs created/maintained Financial Performance and to align our interventions – the Bank’s operations to the national priorities as created/maintained The Bank’s profit after tax for enshrined in Uganda’s Vision 28,313 jobs in 2019, up the year improved by 7% from 2040 and the new National from 23,970 in 2018, Ushs 9.49 billion in 2018 to Ush Development Plan (NDPIII), the implying a net of 4,343 10.14 billion in 2019. This was in Bank has reviewed its strategic new jobs created. Of the part, a result of a 15% growth in plan to cover the next 5-year total, 36% were held by the gross loan book from Ushs period 2020-2024 to include a women and 67% were 309.62 billion in 2018 to Ushs sustainability strategy. taken on by the youth. 354.80 billion resulting in a commensurate 18% increase in During the year 2020, the Bank • Tax contribution – the interest income on loans from will support interventions along total contribution to Ushs 30.23 billion to Ushs 35.72 the three High Impact Goals i.e. government tax revenue billion. As the bank begins to projects and programs that aim by the various companies achieve stability in implementing to reduce poverty in Uganda, supported by the Bank the IFRS 9 Financial Instruments build a sustainable food system improved by 6% during and benefits from improved in Uganda those that promote 2019, from Ushs133.1billion collections, impairment losses on Uganda’s industrialization. To in 2018 to Ugs141.7billion. loans and advances reduced by implement these goals, the bank will prioritize the following • Improvement in private 82% from Ushs 7.91 billion in 2018 initiatives: sector performance to Ushs 1.40 billion in 2019. – there was a 3% The Bank continued to grow, with i. Strategies for focus sectors improvement in the balance sheet growing by as well as cross cutting annual turnover 31% to Ushs 486.37 billion from issues – the Bank will between 2018 and Ushs 370.12 billion in 2018. This develop and implement 2019, from 1.738trillion growth was mainly supported by various sector specific to 1.796Trillion; while a 74% increase of Government strategies aligned to address the constraints profitability of private of Uganda capital contributions and bottlenecks that face sector entities financed from Ushs 48.15 billion in 2018 the key sectors in which by the Bank also to Ushs 83.73 billion in 2019. The improved by 9%. the Bank intervenes and Bank also drew down on the lines sections of the economy of credit with its development the Bank supports. Amongst The Bank will continue to partners in 2019 giving rise to a these strategies include strengthen its development 22% increase in borrowing from agriculture finance strategy, impact monitoring, evaluation Ushs 97.03 billion in 2018 to Ushs the SME lending strategy, and learning framework so 118.00 billion in 2019. gender financing strategy, green finance strategy as to not only ensure that The Bank generated various development outcomes among others. funding relationships that generated by the projects funded are expected to mature in the To complement these by the bank are adequately short to medium term and will strategies, the Bank tracked but also support continue to leverage its equity will implement various assessment-at-entry with to source alternative funding programs and approaches the view to ensure that only opportunities to support its to support its High Impact projects that demonstrate a high investment activities. Goals such as programs promise to create the highest aimed at reducing post- additionality are financed and harvest handling losses, supported. Looking Ahead improved access to Cognizant of the need to embed water for production, yield enhancement sustainability in our operations initiatives, youth skills
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and entrepreneurship 21st century economy and support and commitment to the development among others. to support the attainment Bank and its activities. I wish of the Sustainable to convey our appreciation to ii. Funding raising – Adequate Development Goals. The the Board of Directors for their and appropriate funding bank is at the final states stewardship and support, and remains a critical success of implementing holistic under whose oversight the Bank factor for the Bank to sustainability standards continues to thrive. achieve its strategic under the SSCI and hopes aspirations and mandate. to be certified during To my valued colleagues at the To this end, the Bank the year. Relatedly, the Bank; the Management team purposes to seek out an Bank will continue efforts and all the staff, your continued appropriate mix of funding to green its operations commitment, zeal and hard that will generate requisite and implement a green work ensured that the Bank capital to finance its finance strategy. posts great results yet again. investment needs and at affordable cost. The bank vi. Improved Stakeholder To our dear clients with whom will leverage its paid-up engagement – In line the Bank conducts business, capital to source external with its new medium- and our development partners funding. term Communications who support our business and Strategy, the Bank will progress, we greatly appreciate iii. Enhancing Operational seek to reinvigorate its your continued support and efficiency - The Bank will communication and value our partnership. We look seek to digitize several stakeholder management forward to more rewarding years aspects of its operations approach in order to ahead as we commit to working with aim of leveraging proactively keep all and serving you better. technology to transform stakeholders informed of customer experience and the impact and outcomes I wish you all a rewarding 2020. to expand its outreach. of its interventions. In addition, the bank will focus on building The Bank will prioritize these an adequate stock of and a host of other initiatives competencies amongst in 2020 as it commences the its staff to ensure that implementation of its revised Ms. Patricia A. Ojangole the Bank addresses the strategy whose intended Managing Director institutional needs – both outcome is to ensure the Bank for now and the future. continues to deliver its mandate as a catalyst of Uganda’s socio- iv. Innovation – Having rolled economic development. out its innovation journey during the year and the overwhelming success that Appreciation was associated with it, On behalf of Management and the Bank will continue to support activities that will staff, I convey my gratitude to all seek to promote a culture the stakeholders in our business of innovation within the for supporting the Bank to Bank and amongst all its flourish and make a meaningful human capital. contribution in transforming businesses and livelihoods in v. Implementing Uganda. Sustainability Initiatives – The Bank will implement Specifically, we thank the various interventions to shareholders, the Ministry of align its operations and Finance, Planning and Economic investments to demands of Development for their continued
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The Executive Team
Ms. Patricia Ojangole - Managing Director
M.Phil in Development Finance (cum laude), University of Stellenbosch Business School; Masters in Business Administration from ESAMI; B.Com Makerere University; Member of the Institute of Certified Public Accountants of Uganda (ICPAU); Fellow of the Association of Chartered Certified Accountants (FCCA); Member of the Institute of Internal Auditors (IIA)
Mr. Mahamoud Andama Mr. Denis Ochieng Ms. Sophie K. Nakandi Director Investments Director Finance and Business Head Legal and Company Secretary Operations
MA (International Economics MSc. Financial Risk Management, Bachelor of Law, Makerere and Trade); Bachelor of Glasgow Caledonian University; University; Postgraduate Business Administration, BCom (Accounting), Makerere Diploma in Legal Practice, Law Makerere University; Member University; Member of the Development Centre; Masters of the Association of Chartered Institute of Certified Public in Business Law, De Montfort Certified Accountants (ACCA). Accountants of Uganda (ICPAU); University, Leicester. He has completed several Fellow of the Association of leadership and management Chartered Certified Accountants programs and is pursuing an (FCCA); Graduate of the CEO MBA at Edinburgh Business Apprenticeship Program. School-Heriot WATT University Scotland UK.
Mr. Stephen Hamya Mr. Joshua Allan Mwesiga Mr. Samuel Edem – Maitum Chief Internal Auditor Director Strategy and Corporate Director Credit Affairs
B.Com (Accounting) Makerere MSc. Human Resources Masters of Science in Accounting University Business School; Management, Herriot Watt and Finance, University Of Graduate of the Senior University- UK; BA (Social Greenwich, London; Bachelor Leadership Development Sciences), Makerere University; of Arts in Social Sciences Program of the Strathmore Graduate Diploma in Modern (Economics) Makerere University, Business School; Member of Management & Administration, Kampala; Graduate CEO the Institute of Certified Public Cambridge International Apprenticeship Program 2013; Accountants of Uganda (ICPAU); College, UK; Certified Senior Member of the Institute of Fellow of the Association of HR Professional (SHRM-SCP), Corporate Governance of Uganda. Chartered Certified Accountants Member of the Society of Human (FCCA); Member of the Institute of Resources Management (SHRM)– Internal Auditors (IIA); Associate USA; Graduate of the CEO Member of the Association of Apprenticeship Program (CAP18). Certified Fraud Examiners (ACFE).
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Committed To Good Corporate Governance
Overview The Corporate Governance Statement stipulates the governance framework that was adopted by the Board of Uganda Development Bank Ltd and the achievements posted in the year 2019. The Board believes that adherence to sound and effective corporate practices is central to the effective, transparent and seamless operations of the Bank and impacts the Bank’s ability to attract the right human capital, investment partners, stakeholders and enhance shareholder value. In the year under review, the Bank complied with all applicable laws, rules, regulations, and guidelines on corporate governance.
The Board, Management and the shareholders and wider control environment. Staff of Uganda Development stakeholders. The Bank’s The Bank has a broad-based Bank Limited are committed performance is disclosed to Board of Directors. The Board to ensuring that the Bank’s the shareholders at the Annual functions as a full Board and operations and processes are General Meeting, through the through various Committees governed by clearly defined publication of its financial constituted to oversee specific principles of good corporate statements and on its website. strategic and technical areas. governance to ensure proper governance, transparency, and Board and the Directors The size of the Board is accountability to its stakeholders determined by the Memorandum through the existence of effective Size and Composition of the and Articles of Association, which policies and systems of self- Board of Directors currently permits 7 members, 6 regulation. The Board of Directors is the being non-executive directors and 1 executive director. The Board embraces relevant Bank’s highest decision-making best practices both local and body and is accountable for The Board is comprised of highly international and is committed good governance, monitoring committed persons with good to upholding the fundamental of the Bank’s strategy as well expertise, a wealth of skills tenets of governance which as its performance. The Board and experience required to include independence, social is mandated with the role of provide the necessary overall responsibility, discipline, policy approval in addition to strategic guidance to the Bank transparency, accountability and the approval of the Budget and and ensure that no individual fairness to all stakeholders. financial statements. The Board Director has unfettered powers also ensures the availability of of decision-making. The roles of The annual report is a an effective risk management the Chairman of the Board and demonstration of the Bank’s system as well as the internal that of the Managing Director are culture of accountability to
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clearly defined and separated, Bank operates. The induction necessary. During the period thereby ensuring a clear division further enables the directors to ended 31 December 2019, the of responsibilities at the Bank. meet the Senior Management Board convened 11 times and team. Periodically, the Chairman The Non-Executive Directors also, a Board strategy session and Company Secretary review constructively challenge was held over 2 days during Directors’ training needs, in Management’s ideas and the year. Refer to details on conjunction with individual proposals and bring independent page 39 for Board attendance Directors and match those judgment, expertise as well as during the period. To enable the needs with appropriate external useful contacts to the Board Board to effectively discharge seminars, courses and on-site while Executive Directors, on its responsibilities, the Board visits as applicable. the other hand, are mandated approves an annual calendar with the implementation of Annually, the Directors approve and to allow the directors the strategy as well as Board a Director Development Matrix sufficient time in preparation resolutions and provide useful which entails the various training for the meetings, the majority insight and perspective of the that they are meant to undertake of Board and Committee papers business, therefore, facilitating to augment their oversight role. are circulated four days before the Board to issue informed During the year 2019, all the the meeting. To facilitate resolutions. directors were trained in various efficient decision making, the disciplines as per the approved Management team, and other Appointments Director Development Matrix. senior executives may be invited to attend part of the meetings to Under the Bank’s Articles of Board Succession provide additional insight into Association, the appointment of technical matters at the relevant and reappointment of Directors Planning time during the Board and is conducted by the Shareholders Committee meetings. Succession planning is a key at the Annual General Meeting focus of the appointing authority (AGM) and interim Board During the year 2019, the which on an on-going basis, appointments conducted attendance of the meetings was considers the composition of between AGMs confirmed at the good with sufficient justification the Board and its committees to subsequent AGM. provided for the absence of ensure continued effectiveness directors mainly based on health, In selecting directors, the and retention of Board members travel and conflicting matters of appointing authority identifies with considerable experience. national importance. individuals who are of very This ensures that appropriate high integrity with knowledge levels of institutional knowledge Digital Technology in sectors in which the Bank is are maintained. involved. The Board utilizes technology As part of the Board’s in its operations and the Board Induction and Training responsibility to ensure that papers are circulated to the effective management is in place directors through a secure All new Directors participate in a to implement the Bank’s strategy, portal known as convene. The formal induction process which the Board approved a succession electronic mode of operation is presented by the Managing plan and development plans contributes to the preservation Director as well as Senior to augment the identified of the environment by reduction Management and coordinated successors’ capacity in various of paper use in addition to by the Company Secretary. The disciplines were rolled out. augmenting efficiency. induction process enables the directors to appreciate the Board Meetings and The Board Charter strategic, financial, operational and risk management policies Attendance The Board has a charter which sets out the guidelines for the and processes, governance The Board meets at least 4 times Directors of the Bank in the framework, values and key in a year and holds a strategy performance of their functions developments in the Bank as well session annually whereas Special and responsibilities. It, in as the environment in which the Board meetings are held where
34 2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
particular, provides a governance govern the operation of the allowance for the meetings they framework through which the product. The fundamental reason attend. The Directors proposed Board can properly conduct for the Bank’s decision to invest remuneration is recommended to its affairs and monitor the in private equity is to provide the shareholders at the Annual operations of the Bank to ensure affordable equity financing to General Meeting (AGM) for the fulfillment of its mandate. companies in key growth sectors. approval. No performance-based The Board reviewed the Charter The constitution of the Equity remuneration is paid to directors. during the year to take into Investment Committee that is During the period ended 31 account changing circumstances mandated with the oversight of December 2019 the Directors and alignment to best practice. the product commenced and will were remunerated as per the be operationalized in the year table below: Board Committees 2020. 2019 2018 2017 The Board delegates some of its responsibilities to Committees Delegation of Authority Ushs millions but remains accountable to the The Board delegates certain Directors 425 308 373 emoluments shareholders. The Committees functions to its Board augment the Board’s efficiency Committees but without but also facilitate detailed abdicating its responsibilities. discussion of technical issues The Board also delegates its Conflict of Interest and application of relevant authority to the Managing Board members have a fiduciary specialized director expertise Director and Executive obligation under Section 198 (c) to specific areas. The Board Committee to manage the day to of the Companies Act, 2012 – to is comprised of three Board day business and affairs of the act in the best interests of the Committees including the Board Bank. The Executive Committee company that they serve. Board Strategic Planning Committee, and its subcommittees assist members must act in good faith Board Credit Committee, and the the Managing Director in the in the interests of the company Board Audit and Risk Committee. execution of her mandate within as a whole and this shall All Board Committees operate documented thresholds. include— under Board-approved terms of The Managing Director is tasked reference which were reviewed a) treating all shareholders with the implementation of during the year to keep abreast equally; Board decisions and there is of developments in corporate a clear flow of information b) avoiding conflicts of governance as well as reflect between Management and the interest; the status on the ground. The Board which facilitates both Chairperson of each Board c) declaring any conflicts of the qualitative and quantitative Committee is a non-executive interest; evaluation of the Bank’s director and members of each performance. d) not making personal committee are appointed by profits at the company’s the Board Chairperson. At The executive committee is set expense; and a Board meeting following out on page 32. e) not accepting benefits each committee meeting, the that will compromise him Board receives a report on the Board Remuneration or her from third parties. deliberations, conclusions, and The Board Strategic Planning recommendations. The reports of Committee plays an advisory the 3 Board Committees appear role in the remuneration At every meeting involving on pages 36 to 39 to this report. of staff and non-executive Board members, directors, and executive management, To promote investment in directors. The Board ensures members are required to disclose sectors that are strategic to the that Executive Directors are any potential conflicts and if growth and development of the remunerated appropriately to required, to withdraw from the economy, the Board approved attract and retain talent. Non- proceedings. Declarations of the roll-out of the equity finance Executive Directors are paid a conflict are also made to the product and the policy that will monthly retainer and sitting
35 2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
Company Secretary as and when to the Bank’s culture. Shareholders are mandated to necessary. The declarations are The Bank has a corporate appoint the Board of Directors made at each Board meeting governance culture designed and external Auditors. They, and at meetings of the Board to foster compliance and best therefore, hold the Board of committees responsible for practice within the organization Directors responsible and considering transactions. in line with international accountable for effective corporate governance trends corporate governance. Board Effectiveness (including the Companies BOARD COMMITTEE and Evaluation Act, 2012 and the Financial Institutions Act, 2004 among REPORTS To facilitate continuous others). The Bank is therefore improvement, the Board annually committed to complying with All the Chairpersons of the Board evaluates its performance as legislation, regulations and Committees are non-executive a whole, Board committees, best practice codes with the directors. The Bank’s Board Chairperson, Managing Director, ultimate objective of fostering structure is reflected on page 37. and Company Secretary. The transparency, disclosure, A. Board Credit Committee Assessment for the year was accountability, and probity internally facilitated using in its transactions. Whilst the Report an approved evaluation tool Bank continues to nurture a The Board Credit Committee employing a self-evaluation strong culture of governance (BCC) comprises of an process. An evaluation of the and responsibility for risk Independent/Non-Executive Chairman is conducted by management, it is constantly Director, Mr. Nimrod Waniala, the other Directors while the monitoring its practices to ensure non-Independent/Non- evaluation of the performance that they are the best fit for it Executive Mr. John Byaruhanga of individual Directors is and serve to enhance business and the Managing Director, Ms. assessed by peer directors and and community objectives. Patricia Ojangole. The Director discussed between the Chairman Investments and Director Every quarter, the Audit and Risk and each Director. The last Credit attend BCC meetings Committee receives reports on, Board evaluation exercise was as permanent invitees. The among other things, the status of conducted in 2019 and an action Committee is also supported by compliance risk management in plan to facilitate improvement a Board Advisor who brings a the Bank and significant areas of generated including wealth of technical experience non- compliance. All of these are enhancement of the Board to the committee. The Board is subject to review by the Internal induction manual, enhancement satisfied that the collective skills Audit function. of the communication strategy of the members of the BCC are and enhancement of the Board Shareholders’ appropriate, relative to the size composition. and circumstances of the Bank. Responsibilities The role of this Committee is to Codes and Regulations ensure that effective frameworks The Bank recognizes the for credit risk governance The Bank is regulated and importance of maintaining are in place in the Bank. The monitored under the Public transparency and accountability Committee reports to the Board Enterprise Reform and to its shareholders. The Bank on credit portfolios, adequacy Divestiture Act, Uganda provides the shareholders with of provisions, the status of Development Bank Limited has adequate, timely and sufficient non-performing loans. The BCC reporting obligations to the information about the Bank’s approves credit applications in Parastatal Monitoring Unit (PMU) Strategy. The Annual General the excess of Ushs 1.5 billion. and is committed to complying Meeting provides a forum for the The BCC convenes as and when with legislation, regulations, and Board to engage the shareholders required to consider credit codes of best practice. although other engagements applications falling within Compliance with all applicable outside the Annual General its ambit and has therefore legislation, regulations, Meeting are also held. complied with its mandate. standards, and codes is integral
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During the year, the BCC the key performance Strategy contributed significantly to the indicators. overall funding approvals of Ushs xiii. Diversity and Inclusion 256.4 billion approved by the ii. Provision of Oversight on Policy Committee in 73 transactions. matters about the Bank’s human resource policies; xiv. Board of Directors Skills Details of these and other matrix transactions are provided in the iii. Assisting the Board in sustainability section of this determining the broad xv. Bank’s Succession Plan. report. policy for executive and Senior Management C. Board Audit and Risk B. Board Strategic Planning remuneration, and Committee Report Committee Report maintaining oversight over the Bank’s remuneration The Board Audit and Risk The Board Strategic Planning philosophy; Committee (BARC) comprises of Committee (BSPC) comprises three Independent Non-Executive two independent Non-Executive iv. Ensuring that the right Directors, one of whom acts as Directors, one Non-Independent calibre of Management is Chairperson. Mr. Henry Magino Non-Executive Director, and the recruited and retained; Balwanyi is the Chairman of Managing Director. Mrs. Silvia the committee while Mr. Francis Angey Ufoyuru is the Chairperson v. Assisting the Board in the Tumuheirwe and Mrs. Silvia setting of performance- of the BSPC while Mr. Nimrod Angey Ufoyuru are members of related incentive schemes, Waniala, Mr. John Byaruhanga, the committee. The Committee and Ms. Patricia Ojangole are performance criteria, and measurements; is supported by a Board Advisor members. The Director Strategy who provides technical guidance and Corporate Affairs and the vi. Oversight over the to the Committee. The Chief Director Finance and Business implementation of the Internal Auditor, Director Finance Operations attend BSPC meetings Banks’ Information and Business Operations, Head as permanent invitees. The Board technology and digitization Legal and Head Risk attend BARC is satisfied that the collective Strategy. meetings as permanent invitees. skills of the members of the BSPC are appropriate, relative to the vii. During the year, the The BARC assists the Board size and circumstances of the Committee considered in fulfilling its oversight Bank. various strategic issues responsibilities, in particular including the following: about the evaluation of the As defined in its Charter, adequacy and efficiency of this Committee’s specific viii. An evaluation of the accounting policies, internal responsibilities include but are Bank’s, Executive and Staff controls, risk management, and not limited to: performance. Based on the financial reporting processes. achieved performance, the Also, the BARC assesses the i. Work closely with committee recommended independence and effectiveness Management in the payment of applicable of the External and Internal developing the Bank’s incentives for the year long term strategy under review. auditors. and annual business During the year, the Committee ix. Amendment of the Human plan. Management is carried out its functions through Resource Policies to mandated with the duty discussions with Executive of executing the strategy consider best practices Management, Internal Audit, and reports to the BSPC External Audit, and the external on the performance x. Business Technology and against the strategy and Digitisation Strategy adviser. The BARC meets at least annual business plans four times per annum, with every quarter, including xi. Green Finance and authority to convene additional a detailed account of Investment Strategy meetings as circumstances achievement against the require. To execute its key targets outlined through xii. Communication and functions and discharge its Stakeholder Engagement
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responsibilities as spelt out in review. The Committee is of agreed to the engagement letter, its terms of reference during the opinion that the internal terms, audit plan and audit fees the period under review, the accounting controls are adequate for the financial year ended 31 Committee considered the to ensure that the financial December 2019. following and recommend the records may be relied upon for The Committee: same to the Board for approval: preparing the Annual Financial Statements, that accountability i. Evaluation of the adequacy i. Approved the external for assets and liabilities is and efficiency of the auditors’ annual plan and internal control systems, maintained, and that this is related scope of work accounting practices, based on sound accounting information systems, risk policies which are supported ii. Monitored the management and auditing by reasonable and prudent effectiveness of the processes applied within judgments and estimates. The external auditors in the Bank in the day-to- BARC has obtained assurance terms of their skills, independence, execution day management of its that the internal controls of the of the audit plan, reporting business; Bank have been effective in all and overall performance. material aspects throughout the ii. The Bank’s audited accounts year under review. Financial Statements This assurance is based on the iii. The pricing model to The Committee reviewed the information and explanations govern the pricing of loan financial statements of the given by Management regarding facilities Bank and was satisfied that various processes and initiatives they materially complied with iv. The Bank’s capitalization aimed at improving the internal IFRS and the requirements of Strategy control environment and the Companies Act, 2012. During the integrity of information, v. The Finance Policy to the the period under review the discussions with internal audit, Board Committee: and with the independent vi. The Bank’s uptake of Lines external auditors, on the results i. Reviewed and discussed of Credit of their audits. the audited Annual Financial Statements with Internal Control External Auditors the external auditors and The BARC monitored the Management. The Bank’s external auditors are effectiveness of the UDB’s Office of the Auditor General internal controls and compliance ii. Reviewed the external with KPMG as delegated Auditor. auditors’ report and with the Enterprise-wide The committee has satisfied Management’s response Risk Management Framework itself that the external auditors, to it; (ERMF). The emphasis on risk were independent of the Bank governance is based on three iii. Reviewed any significant which includes consideration of lines of defence and the BARC adjustments resulting from compliance with criteria relating uses the regular reports received external audit queries and to independence or conflicts from the three lines of defence accepted unadjusted audit of interest as prescribed by (process owners and department differences; The International Auditing and heads, Risk and Compliance Assurance Standards Board. iv. Reviewed areas of departments, management, and Assurance was sought and significant judgements and the Internal Audit department) provided by the external auditors estimates in the Annual to evaluate the effectiveness of that their claim to independence Financial Statements; and the internal controls. No findings was supported and demonstrated v. Received and considered have come to the attention of by internal governance processes reports from the internal the Committee to indicate that within their firm. auditors. any material breakdown in internal controls has occurred The Committee, in consultation during the financial year under with Executive Management,
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Expertise and Going Concern Risk Management Experience of the The Committee concurs that the The Board has assigned oversight adoption of the going concern of the Bank’s risk management Finance Function assumption in the preparation of function to BARC. The Committee The Committee has considered the Annual Financial Statements fulfills an oversight role regarding and has satisfied itself with is appropriate and sound. financial reporting risks, internal the overall appropriateness of financial controls, fraud risk, the expertise and adequacy of and information technology resources of the Bank’s finance risks as they relate to financial function and the experience reporting. The BARC is satisfied of the senior members of that appropriate and effective management responsible for the risk management processes are financial function. in place.
BOARD STRUCTURE AND COMPOSITION UDB Board of Board Credit Board Strategic Board Audit and Risk Directors Committee Planning Committee Committee Responsible Considers Responsible for Monitors the adequacy for the credit the strategic of financial controls and performance of transactions direction of the reporting, internal control the Bank while and Risk bank; develops environment and Risk retaining full mandated to it compensation Management and effective by the Board policies, control resourcing plans and performance goals
Committee membership and number of meetings attended Full Board Board Credit Board Strategic Board Audit and Risk Meeting Committee Planning Committee Committee Number of meetings 11 10 4 5 Felix Okoboi 11** 1* Nil 1* Nimrod Waniala 11 10** 4 Nil Henry Balwanyi Magino 10 10 Nil 4 Silvia Angey Ufoyuru 9 Nil 3** 5 John Byaruhanga 10 7 3 Nil Francis Tumuheirwe 8 Nil Nil 5 Patricia Ojangole 10 9 4 Nil
*On invitation ** Chairperson of the respective committee
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Internal Audit The Internal Audit department process by which the Internal and advice to the Board on has a functional reporting line Audit has performed audits matters of ethics, adherence to the Committee Chairperson according to a risk-based audit to good corporate governance and an administrative reporting plan where the effectiveness principles, and compliance line to the Managing Director. of the risk management and with procedures and applicable The BARC, with respect to its internal controls were evaluated. statutes and regulations. The Company Secretary assists evaluation of the adequacy and These evaluations were the main the Board as a whole and its effectiveness of internal controls, input considered by the Board in members individually, with receives reports from Internal reporting on the effectiveness of guidance as to how their duties, Audit every quarter, assesses internal controls. the effectiveness of the internal responsibilities, and powers audit function, and reviews and The Committee is satisfied should be adequately discharged approves the Internal Audit with the independence and and exercised in the best department’s Audit Plan. effectiveness of the internal interests of the Bank. audit function. The BARC is responsible for The Company Secretary is not ensuring that the Internal Audit The Committee is therefore a director of the Bank and acts function is independent and has satisfied that it has complied independently from the Board. the necessary resources, standing in all material respects with In line with good governance and authority within the Bank to its legal, regulatory and other practice, the appointment enable it to discharge its duties. responsibilities. and removal of the Company The Internal Audit function’s Secretary is a matter for the Annual Audit Plan was approved Company Secretary Board. by the BARC. The Committee The Company Secretary plays The Company Secretary fulfills a monitored and challenged, where a pivotal role in the corporate dual role in that she is also the appropriate, the action taken governance of the Bank. The General Counsel of the Bank. by management concerning Company Secretary is responsible adverse Internal Audit findings. to the Board for, inter alia, acting The Committee has overseen a as a central source of information
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Enterprise Risk on-going E&S monitoring of E & S Ushs’ % by projects under implementation. Risk 000 Volume Management This report provides an update Category on the impacts and risks to Category 37,500,000 14.6% Environmental and human health, the environment A and society, and where necessary Social Management provides mitigations or Category 99,146,372 38.7% Policy and Framework compensation for them by taking B appropriate measures, for all UDB’s ability to manage Category 94,721,163 36.9% projects funded by the Bank. environmental, social and C governance matters demonstrate Also, the bank conducted its Category 25,000,000 9.8% the leadership and good carbon footprint assessment FI governance that is essential which is also detailed in this TOTAL 256,367,536 100% to sustainable growth, which report. is why we are progressively The above is an attestation 2.1 E&S Risk Appraisal in the incorporating these issues into of the integration of the our investment processes. Credit Disbursements environmental and social As UDB, we are committed The environmental and social risk safeguards framework in the to investing in activities category A1,B2, C3 or FI4 (Financial financing activities of the Bank that enhance environmental Intermediaries), reflects the E & since the adoption of the ESMS. protection measures, in S potential impacts associated 37% of the projects appraised compliance with the Ugandan with a project and determines were category C projects with environmental laws and the nature of the environmental 52 projects, valued at Ushs international best practices and social appraisal, information 94.7 billion out of Ushs 256.4 pertaining to, and that avoid and disclosure and stakeholder billion approved in 2019 while negative environmental and engagement required. 39% of the projects appraised were category B worth Ushs 99.1 social impact on communities. In 2019, the bank received billion with a total number of 26 The Bank developed an and approved 73 investment projects. On average, the total Environmental and Social facilitation requests, valued up financial requests from category Management (E&S) Framework to 256.4 billion shillings. A total B project were about Ushs 1.9 which it uses for the screening of of 25 projects were subjected billion minima as compared projects submitted for funding. to E & S risk analysis (based on to Ushs 1.8 billion and Ushs The framework integrates E&S perceived risk from the project 721million for category C and risk management into UDB’s production process, expected A projects respectively. These Investment processes. It helps amount of waste disposal and projects are highly concentrated the Bank to avoid transactions initial E&S assessment during in the manufacturing and agro- that may have significant deal review)- the potential risks processing sectors. They also environmental and social risks and impacts analysed and ranked pose a significant financial risk to by conducting environmental according to the bank ESMS E & S the Bank. Due to concentration and social due diligence before risk category highlighted above. risk on an industry and sector financial engagement. It also perspective, there would be a helps the Bank to identify and Table 1: Annual Breakdown of loss in incomes should there be manage E&S risks of the Bank’s Bank Investment by category new regulation and stringent portfolio. in 2019 enforcement practices, arising 1 Projects with potentially negative significant and from fines and charges or 2.0 Environmental and Social adverse environmental and social impacts, requiring a detailed participatory assessment process. prohibitions from operations Governance Assurance Report 2 Projects with environmental and social impacts that are site-specific, and which can be readily assessed and if triggered by non-compliance During the year, the Bank managed. to statutory/institutional 3 Those that are expected to result in minimal adverse examined all its financial environmental and social impacts. requirements and unclean proposals for Environmental and 4 Transactions that involve the provision of financing to a financial intermediary – typically a bank or a fund production. Social Impact and performed which are required to adopt and implement procedures to manage their environmental and social risks.
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2.2 Incident Management and Reporting In 2019, the Environmental and Social risk desk received only one incident of a reputational nature given a publication relating to child labour employment which appeared in the Daily Monitor, where a client was alleged of exploitation and abuse of minors. The incident was reviewed and investigated. However, it was later proven non-valid after verification of recommendation letter from the area council I and national identity card of the alleged minors.
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1.1 Mitigation Measures operations that constitute the largest source. Although, on The Bank will continue to the purpose of accounting aggregation with alert datum strengthen the E & S office and reporting greenhouse gas 20,000 tCO2e, this level of in the years ahead to ensure emissions. This is, therefore, a emissions is extremely low-level effective environmental and report on the contribution of the and can still be cut down. social screening for all projects bank’s operations on its carbon Table 2: 2019 Carbon Footprint eligible for funding. The Bank footprint for the year 2019. A Performance Summary will also undertake measures sizable proportion of the bank’s carbon footprint was linked to to have a big proportion of its Net Employees Intensity investments in Category C and employee numbers which stood emissions per FI to limit the adverse effects at 69 in 2019. employee 2019 349 tCO e 69 5.1 tCO e that may arise from changes in UDB carbon footprint uses the 2 2 technology, national laws and/or operational control approach and charges due to non-compliance, categorizes them into different or regional markets could send pillars, or scopes, as either direct Mobility emissions, such as projects under category A and B or indirect. Below are the scopes business travel, owned vehicles, and employee commuting into revenue meltdown. used: accounted for 91.3%. The total 3.0 Greenhouse Gas Scope 1: Direct GHG emissions distance traveled across all forms of transports contributing to a Assessment 2019 and These include gases that occur total mobility emission of 319 Looking Ahead in 2020 from sources that are owned tCO2e. Staff commuting was the or controlled by the bank, single largest contributor to total The Bank conducted its first for example, emissions from Greenhouse Gas Assessment emissions on a gross basis at 73% combustion in company-owned (254.69tCO2e). Business travel in 2019 to track the carbon (vehicles). emissions from its operations. was the second-largest source of emission and subsequently This becomes a baseline for Scope 2: Electricity indirect electricity consumption. emission inventory and will form GHG emissions a foundation for subsequent years for comparative analysis Emissions from the generation of Figure 2: Breakdown of and decision making to calculate purchased electricity consumed mobility gross emissions by and reduce its carbon footprint. by the bank. source Carbondioxide emission Scope 3: Other indirect GHG Building rental-related emissions equivalent inventory from emissions including purchased electricity, the bank’s direct operations water, waste, and paper Emissions that are a result of the and investment projects consumption accounted for 8.7 % financing activities of the bank was undertaken. This was in (30.47tCO2e) of the Bank’s overall but occur from sources that are conformity with standards set footprint. The emission resulting not owned or controlled by the by the Intergovernmental Panel from utilities consumption bank. These include emissions on Climate change (IPCC) and to (water and electricity) is higher from waste, transportation, improve disclosure and reduce for electricity consumption up electricity consumption, and the environmental impact of its to about 19.53 tCO2e compared water. operations. to water consumption. This Greenhouse Gas Assessment The boundary distinction was is attributed to the full use was conducted using the laid down to allow UDB to of electricity for lighting and Greenhouse Gas Protocol to determine and model emission air conditioning despite the provide an estimate of the net reduction strategies, their available natural light and carbon footprint that resulted payback, and viability. window ventilation system in place. Paper consumption from UDB’s direct control in its The total carbon footprint of the represents significant building- operations. The organizational bank 349tCO2e has been recorded related emissions sources at 9.68 boundary was used because with staff commuting and tCO2e with waste accounting for it defines the activities and business travel -long haul being 2.8%.
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Figure 3: Emissions from Electricity, water, and paper consumption
In addition, the high-water consumption in the bank is mainly from the washroom. Almost 0.5litres of water is used per single staff or visitor during hand-washing. Although, there is potential to cut it down from the current levels using intelligent thermostatic high basin taps.
3.1 Emission Reduction — Periodical use and consumption. optimization of the Strategies ventilation systems, — Given the fact that emissions In 2020 and beyond, the Bank will including real-time alignment from short and long haul travel take the following measures to of lighting and usage of from staff commute is difficult reduce its carbon emissions electronic systems. In Other to control, the Bank will partner words, open windows and with National Forestry Authority — Maximize the use of natural turn off computers and lights (NFA) and seek an expression light through windows. This when not using them. of interest to plant trees and shall result in a potential also support entities that plant drop in power consumption — Replace the taps in the trees to offset this unavoidable and subsequently reduced handwash areas with emission that will continue to emission from electricity intelligent thermostatic high grow as the business grows.. purchased. basin taps to reduce water
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Risk Management & Compliance Overview
In 2019, the Bank reviewed its 2018 - 2022 strategic road map to align itself to the National Planning cycle of government which is a 5 year National Development Plan (III) and to adopt the sustainability development initiatives that are currently shaping the world and especially the development institutions and multilateral agencies in respect to climate change and Sustainable Development Goals 2030. The review of the strategic road-map resulted into the launch of a new 5-year corporate strategy 2020-2024. Significant effort went into creating collaborations and alliances with entities that have already been at the forefront of these climate initiatives and sustainable development initiatives like Development Bank of South Africa (DBSA), and European Organisation for Sustainable Development (EOSD) among others. During the year the Bank maintained a B+/Stable credit rating by Fitch Rating agency; and continued to work on its accreditation with the Green Climate Fund (GCF).
n 2020, the Bank will interest rate and foreign In the financial services industry work towards improving exchange movements had no managing of associated risks the quality of its loan adverse effects on the Bank’s is an integral part of business book and improving returns in 2019, the stability of and if not attended to can be process efficiencies and the USD/Ushs currencies and disastrous to the Bank and the effectiveness across the LIBOR for the borrowed funds. industry at large. Identification core process of the Bank. The Bank continues to exercise and treatment of risk and IFunding diversification is a key a high level of risk management compliance related matters that objective of the Bank’s funding awareness and prudence as arise are a continuous process and liquidity management. The it looks to be regulated for that the Bank follows in its day to Bank strives to diversify its good governance practices and day operations. borrowing in terms of currencies, oversight. The Bank was rated Risk Governance is an enabler maturities, instruments and A+ by AADFI and regulation will to good risk management and investor types in order to avoid even make it stronger in years to for that reason the Bank’s excessive reliance on individual come. Board of Directors has the markets and funding sources as ultimate responsibilities for the it strives to increase the level Risk Management establishment and oversight of capitalization which it can framework of the Bank’s Enterprise Risk leverage on. This will have an The Bank is exposed to Management framework. The impact on the 3 high Impact various risks that arise from framework articulates the Goals that the Bank identified its operations in the financial risk management process to have intervention to create services space. Some of these followed in the Bank and there development outcomes for the risks are; Credit, Foreign is responsibility set out at all country. Exchange, Operational, Liquidity levels, from the Board; who set The risk environment especially and Compliance risks among the tone through to management; the market factors such as others. who supervise and manage the
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implementation of the strategy identified in its operations Supervision and Monitoring to the individual staff; who were credit risk, market risk, Unit which provides relevant are involved in the day to day liquidity risk, operational risk, information to management to activities of the Bank. and compliance risk. These make its experienced judgments risks are managed with the about the quality of the loan The key risks are managed at overall objective of maintaining portfolio and provide the various committees such as; the financial soundness and avoiding foundation upon which the Assets and Liabilities Committee activities that could threaten the provisioning methodology is which oversees liquidity, market, Bank’s capital and reputation. built. The same information and financial performance Managing these risks also unveils is used by management to risks; the Management Credit opportunities to the Bank. monitor the condition of the Committee which oversees the loan portfolio and the aging credit and business risks, the Credit Risk categorization of each exposure. Risk Management Committee that assesses and reports to This is the risk of financial loss Market Risks the Executive Committee and to the Bank arising from non- the Board of Directors through performance by a counterparty The Bank defines market risk Board Audit & Risk Committee to a financial instrument due to as the risk of valuation loss or that assesses the adequacy of failure to meet its contractual reduction in expected earnings the management of risks that the obligation. Such financial stemming from adverse Bank faces, while the Executive instruments include loans fluctuations in exchange rates, Committee provides the overall and advances, including the interest rates, credit spreads and oversight to all risks in the Bank advancement of securities and cross-currency basis spread. contracts to support customer at management level. Market risks predominantly obligations such as letters arise from the Bank’s core The Internal and External of credit and performance business activities and the auditors give management and guarantees. the board assurance that the liquidity portfolio needed to risk management policies and UDB’s credit risk management support these activities. The procedures including enterprise aims at preserving the high credit Bank’s strategy is to obtain risk management framework are quality of the Bank’s portfolios cost-efficient funding from adequate, complied with and the and thereby protecting the diversified sources as detailed information provided is accurate. Bank’s short- and long-term in the funding strategy and viability. The Bank’s credit risk provide lending that is tailored Managing our risks and management builds on the to the needs of its customers opportunities principles of (1) appropriate risk through facility structuring. This diversification within the scope gives rise to foreign exchange The Bank’s risk management of the mission; (2) thorough risk and structural interest rate framework comprises risk risk assessment at the credit risk due to mismatches in the policies and procedures appraisal stage; (3) risk-based Bank’s assets and liabilities in formulated for the assessment, pricing and risk mitigation; (4) terms of currency composition, measurement, monitoring, and continuous risk monitoring at maturity profile and interest rate reporting of risks including the individual counter-party behaviour. The stability in the several layers of limits set level as well as portfolio level; (5) interest rates and the slowdown to manage the exposure to avoidance of undesirable risks to of LIBOR were factors that made quantifiable risks. The Bank the extent possible. for a stable market risk in the recognizes that effective risk year 2019. management is based on a Key risk indicators monitored sound risk culture, which is are, among others, the asset The Bank managed its market characterized, among others, quality movement in risk class risks by natural hedging against by a high level of awareness distribution in the lending as well foreign exchange risk and concerning risk and risk as large exposures to an obligor interest rate risk to protect its management in the organization. and sector level. earnings and the economic value of its assets and liabilities The main risks that the Bank UDB has in place a Project
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Liquidity risk Operational Risk loss or loss of reputation that the Bank may suffer as a result of its Key objectives for the Bank’s The Bank’s operational failure to comply with all laws, liquidity risk management are to risk management focuses regulations, code of conduct ensure that the liquidity position on proactive measures to and standards of good practice is strong enough to (1) enable ensure business continuity, applicable to its operations. the Bank to carry out its core the accuracy of information Much the Bank does not operate activities for a defined period used internally and reported under any regulatory regime, it under stressed market conditions externally, a competent and has to comply with all relevant without access to new funding; well-informed staff and its laws of the land and there is a (2) secure the highest possible adherence to established rules process in the Bank that allows credit rating by international and procedures as well as on for continuous monitoring of rating agencies; (3) fulfill the security arrangements to protect compliance to the internal liquidity coverage ratio (LCR) and the physical and IT infrastructure policies and procedures and all net stable funding ratio (NSFR). of the Bank. statutory requirements. The liquidity requirement To manage operational risk, UDB is committed to following for various time horizons is the Bank’s activities have best practices and market determined based on analysis been divided into a set of core standards in the areas of Anti and stress testing of future business processes and sub- Money Laundering and Terrorism contractual cash flows. A key processes with designated Financing and business ethics. metric applied is the survival process owners. The process The Bank aims at a zero tolerance horizon, which measures owners are responsible for of bribery and corruption. how long the Bank can fulfill identifying, reporting and its payment obligations in a responding to risks inherent in In the day-to-day operations, severe stress scenario. The the processes. the three lines of defence target survival horizon is twelve model define the roles and Data on incidents is collected months, which means that the responsibilities for compliance to gain information on the Bank can meet its payment and integrity risk in the Bank. The type, cause, frequency and obligations and continue its first line of defence lies with the interdependence of various risk business operations without respective Bank departments and events. Incidents reported are disruption for the coming units, which are responsible for reviewed and categorized by twelve months under stressed ensuring that compliance risks Risk Management. The Bank has conditions. are identified, understood and adopted a categorization based reported to the decision-making The Bank’s Assets and Liabilities on the Basel Committee’s event bodies of the Bank. The second Committee (ALCO) monitors the types comprising (A) internal line of defence lies with Risk liquidity position of the Bank fraud; (B) external fraud; (C) Management, which assesses and through the set appetites every clients, products and business monitors the compliance and month. Any breaches or negative practices; (D) business disruption integrity risks and coordinates its signals are flagged up to the and system failures; (D1) control activities. Internal Audit Board level for action if dimmed execution, delivery and process is the third line of defence necessary depending on the management; (D2) damage to gravity of its implication to the physical assets; (E) employment In managing compliance Bank. practices and workplace safety. and integrity risks, the Bank places particular emphasis on The bank currently maintains Compliance Risk preventing bribery, fraud and a sound balance sheet and Management corruption, money laundering depends on sovereign support and the financing of international from the Government of Uganda This is the risk of legal or terrorism as well as tax fraud and through engagements with other regulatory sanctions, financial tax evasion. strategic partners.
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Operating Environment
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Macro-Economic Environment in 2019 and Outlook
1.0 Global economic and slowing in all geographic 1.1 Global Financial areas except Africa. “This growth slowdown is occurring alongside markets The global economy recorded growing discontent with the Global financing conditions its lowest growth of the decade social and environmental eased considerably in 2019. Bond in 2019, falling to 2.3% as a quality of economic growth, yields in advanced economies result of protracted trade amid pervasive inequalities and fell to unprecedented lows, disputes, high policy uncertainty the deepening climate crisis. notwithstanding a pick up and a slowdown in domestic The United States, the world’s towards the end of the year investment. The U.N.’s annual largest economy, GDP growth amid improvement in market report, the World Economic of 2.9% in 2018 slowed to 2.2% sentiment. Major central banks, Situation and Prospects 2020, in 2019 and is projected to fall most notably the U.S. Federal forecast a modest acceleration further to 1.7% in 2020 with a Reserve and the European in global growth, reaching 2.5% slight increase to 1.8% in 2021. Central Bank (ECB), eased in 2020 and 2.7% in 2021, as Recent U.S. cuts in the federal monetary policy last year in the trade and investment gradually funds rate may promote some face of softening global economic recover. The report warned that economic activity, but “continued prospects, heightened downside slower world growth “threatens policy uncertainty, weak business risks, and persistently low to undermine progress towards confidence, and slowing job inflation. eradicating poverty, raising growth are likely to weigh on The policy rates for major central living standards, and creating a domestic demand.” In China, the banks were relatively low in 2019; sufficient number of decent jobs.” world’s second-largest economy with the Federal interest rates at and the region’s powerhouse, the According to U.N. report, 2019 1.75% as at December, the rate for economy grew 6.6% in 2018 then ended up having the slowest Bank of Japan was at -0.1% and slowed to 6.1% in 2019 and is global economic expansion since the European Central Bank rate projected to slip further to 6% in the world financial crisis in 2008- was at nearly 0%. The intention 2020 and 5.9% in 2021. 2009, with growth trending down is to boost investment that in virtually all major economies stimulates growth.
Implication: The projected slow global growth is expected to slow down Uganda’s export demand; this may negatively affect the country’s foreign exchange earnings and the overall growth of the economy.
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Implication: With the declining 1.3 Growth in Sub- 2019). By contrast, remittances trend in the global interest rates, to EMDEs continued to grow and Uganda and UDB, in particular, Saharan Africa recently surpassed FDI (World should consider sourcing funds Growth in Sub-Saharan Africa Bank 2019). that bear relatively lower interest moderated to a slower-than- rates. expected 2.4% in 2019. Activity was dampened by softening Implication: The expected 1.2 Commodity markets external demand, heightened capital outflows arising from Global trade growth was at global policy uncertainty, and the increased debt burden will 0.3%, as a result of global falling commodity prices. Growth further weaken the sub-Saharan trade tensions that fueled is projected to firm to 2.9% in economies, including Uganda. policy uncertainty, significantly 2020 and strengthen to 3.2% in curtailed investment that pushed 2021-22—notably weaker than East Africa region continues to be global trade growth down. previous projections, according to World Bank Global Economic the fastest-growing sub-region The prices of most commodities prospects report 2020. The in Africa with a 6.2% growth rate fell in 2019, mainly reflecting growth pickup is predicated on driven by government spending deterioration in the growth improving investor confidence on infrastructure and domestic outlook—especially that in some large economies, a demand. East African economies of Emerging Markets and strengthening cyclical recovery have observed a prolonged Developing Economies (EMDEs), among industrial commodity period of robust growth, which tend to have a larger exporters along with a pickup outperforming their peers in the income elasticity of demand in oil production, and robust continent. The region benefits for commodities. Oil prices growth among several exporters from improvements in stability, averaged $61/bbl in 2019, a 10% of agricultural commodities. new investment opportunities, fall from 2018 and $5/bbl below Nonetheless, these growth rates and incentives for the previous projections. Prices were will be insufficient to make development of new industries. supported by production cuts by significant progress in reducing In 2019, the two African countries OPEC and its partners, including poverty in many countries in are among the world’s 10 fastest- the December 2019 decision to the region, highlighting the growing economies; Rwanda at remove 0.5 mb/d of production need for lasting improvements 8.7% and Tanzania 6.8%. on top of previous reductions in labor productivity to bolster However, the worst desert of 1.2 mb/d implemented since growth over the medium term. locust infestation in 70 years is January 2019. Production has Downside risks to the outlook ravaging East Africa, potentially also been constrained in the include a sharper-than-expected endangering economies in a Islamic Republic of Iran and deceleration in major trading region heavily dependent on the República Bolivariana partners; increased investor risk agriculture for food security. de Venezuela by a variety of aversion and capital outflows In recent days, locust swarms geopolitical and domestic factors. triggered by elevated debt have begun to impact South However, these pressures were burdens; and growing insecurity. Sudan, Uganda and Tanzania, offset by weakening oil demand, having already decimated crops as exemplified by downward Foreign direct investment (FDI) throughout Ethiopia, Kenya and revisions to demand projections. has continued its downward Somalia, Eritrea and Djibouti. Oil prices are forecast to decline trend, with some of the recent The FAO estimated that around slightly to an average of $59/bbl weakness attributable to global 8.5 million Ethiopians and 3.1 in 2020 and 2021. U.S. supply is policy uncertainty. FDI weakened million Kenyans already face expected to continue to increase across all Emerging Markets food insecurity. The infestation is in 2020 as new pipeline capacity and Developing Economies “credit negative” for economies comes onstream. The greatest (EMDE) regions in the first half heavily dependent on agriculture, downside risk to the forecast is a of 2019, with the decline being which contributes roughly a third further deterioration in growth. particularly pronounced in EMDEs that had earlier experienced of gross domestic product (GDP) financial pressures (UNCTAD across the whole of East Africa and is responsible for more
50 than 65% of employment across reserves were at a comfortable loans to gross loans reduced over the region, except for Kenya, its 4.4 months of imports in 2019, the year ended June 2019. Asset largest economy. while the exchange rate was quality, as measured by the ratio stable, averaging 3,702 Ugandan of non-performing loans to total 1.4 Uganda’s Economy shillings per dollar. gross loans and advances (NPL The Ugandan economy reported ratio) improved from 4.4% (June strong growth in 2019, estimated 2018) to 3.8% (June 2019). Implication: The widening trade at 6.3%, largely driven by the The aggregate profitability of deficit creates inflationary expansion of services. Services the banking industry improved. and exchange risks with a growth averaged 7.6% in 2019, However, the persistently loss- destabilizing effect on the and industrial growth was at making trend of the smaller relatively stable environment. 6.2%, driven by construction banks remains a concern. The and mining. Agriculture grew at banking sector’s aggregate net- The poverty rate fell during the just 3.8%. Retail, construction, after-tax profit increased by 5.3% past two decades but rebounded and telecommunications were from USh.737.7 billion (FY2017/18) in 2016/17, reaching 21.4%, key economic drivers. Inflation to USh.776.7 billion (FY2018/19), meaning that 10 million people is expected to remain below largely driven by interest income were living below the national 5%, strengthening the domestic on advances and treasury poverty line. economy, according to the African securities that increased by 9.3% Development Bank Economic Inflation was subdued in the and 8.3% respectively. Outlook report 2020. year to June 2019, with the Government spending continues average annual headline inflation Implication: The positive to increase, underpinned by falling to 3.1% from 3.4% in June developments in the Banking public infrastructure and capital 2018. The lower inflation was industry should encourage investments for the nascent oil driven mainly by improved crop growth in private sector credit, and gas industry. Expenditures production due to favourable that eventually would lead to have increased faster than weather conditions, along with lower market interest rates and domestic revenues, widening the reduced fuel costs. increased access to short and fiscal deficit in 2019. The deficit is medium term investment funds. largely financed through external 1.5 The state of UDB’s focus will be to fill the borrowing, supplemented with Uganda’s Banking credit gap associated to long- domestic securities. Despite Industry term financing. the rise in the deficit, Uganda The banking industry aggregate is classified at low risk of debt Awards assets increased by 10.5%, from Inflation distress. However, debt reached fell from USh.27.4 trillion in June 2018 to an estimated 43.6% of GDP in USh.30.3 trillion as at end June 2019, up from 25% in 2012, raising 2019. As the shilling remained 3.4% medium-term concerns. Lending stable against the major foreign remains within IMF limits, but currencies, banks’ deposits with risks have increased due to non-resident banks reduced by higher costs of debt servicing 3.1% Ush.439.0 billion to USh.2,243.3 in June 2018 and infrastructure investments. billion, which had increased Exports, dependent on primary by USh.1,017.9 billion in the products, have not kept up with year ended June 2018; hence imports, widening the trade minimizing the banks’ assets deficit to an estimated 9.4% of exposure to foreign shocks. GDP in 2019 from 8.3% in 2018. The relatively low-interest-rate The increasing current account environment boosted private deficit has been largely financed sector credit growth from 10.8% by foreign direct investment to 13.4% during this period. (2.6% of GDP) and externally The ratio of non-performing Inflation was subdued financed projects. External in the year to June 2019 2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
Awards
Certificate of AADFI rating – the Bank obtained an A+ rating in governance, financial and operating standards
2019 Silver Award for excellent financial reporting 2019 Financial Reporting Award – runner up banking services category
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Sustainability Report This report focuses on material sustainability areas that affect the long-term success of our business and that relate to any significant impacts we have on the economy, environment or communities in which we operate. It also focuses on issues that are important to our key stakeholders.
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Key Sustainability Highlights
Sector key:- PA&AI: Primary Agriculture & Agro-Industrialisation; HCD: Human Capital Development; TRM: Tourism; MFG: Manufacturing; INFRA: Infrastructure; MOG: Minerals, Oil and Gas; OTHRS: Other sectors where the Bank is withdrawing its investments.
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55 55 20192019 ANNUAL ANNUAL REPORT REPORT | |UGANDA UGANDA DEVELOPMENT DEVELOPMENT BANK BANK LTD LTD
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Sustainability Report
ganda Development the goals and targets of the ensuring that sustainability Bank (UDB) is United Nation’s “Transforming has the priority it deserves a development our World: the 2030 Agenda for across the Bank. Sustainability finance institution, Sustainable Development”. The considerations are embedded wholly owned by priorities and sectors that the in each of the various Board the Government Bank finances are aligned to committees as demonstrated of Uganda, with a mandate those of the Country’s National by their mandates. UDB applies Uto promote sustainable Development Plans (NDPs). sound corporate governance socioeconomic development This report focuses on material structures and processes, which through its financial products sustainability areas that affect the Board considers pivotal and services. It seeks to the long-term success of our to delivering sustainable promote social and economic business and that relate to any growth in the interests of all development by mobilising significant impacts we have stakeholders. The Bank’s values financial and other resources on the economy, environment and Code of Ethics underpin from the national and or communities in which we its governance structures and international private and operate. It also focuses on issues processes, committing the public sectors for sustainable that are important to our key organisation to high standards development projects in Uganda. stakeholders. of business integrity and ethics In broad terms, UDB has the in all its activities. Governance We have included a selection of vision of Preferred and trusted structures and processes are case studies and a view of our development finance services reviewed regularly, and adapted estimated development impact provider for socio- economic to accommodate internal to give a sense of what we are development”. More specific to its developments and reflect seeking to achieve through our value proposition is its mission international best practice. For investments. to “Accelerating socio-economic details on Corporate Governance, development through sustainable As a state-owned enterprise, it refer to page 24 of this annual financial interventions” by is important that the activities report. providing access to affordable of the organisation are closely and long term financing and aligned to support key national other tailored financial solutions imperatives. In this report we Sustainability to address priority sector reflect on our contribution to constraints. the National Development Plan Framework as well as the United Nations’ The Bank uses various In fulfilling its mandate, UDB recently adopted 17 Sustainable benchmarks and international is guided by the Country’s Development Goals (SDGs). frameworks such as the Global National Development Plans Reporting Initiatives (GRI) (NDPs), applicable Ugandan laws G4 guidelines for reporting and regulations, agreements purposes in addition to internal with Development Partners, Management Approach Association of African To Sustainability Development Finance Institutions (AADFI) prudential guidelines and Governance local policies. The various governance bodies The Bank also subscribes to within UDB are responsible for The following reports supplement this Sustainability Review:
Our business model Financial Corporate and strategy Sustainability governance report
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frameworks, policies and development of countries. A at the project final closure. Below procedures. The issues raised Development Bank is able to is an illustration of the bank’s by our internal and external contribute to the investments business cycle: stakeholders in our day-today required to stimulate In keeping with the GoU’s Vision interactions are also taken socioeconomic development 2040, UDB’s Vision Statement into account. Accordingly, our in the country. In spurring states that the Bank intends report reflects the contribution economic development, the Bank to contribute to economically the Bank makes towards continued to make investments transforming Uganda. UDB’s financial, economic, social and in the priority sectors as defined development outcomes are environmental development in the Country’s National derived both from the NDPs and arising from the projects Development Plans (NDPs) from its corporate objectives financed by the Bank. namely; Agriculture and Agro- established by the Board. Industrialisation, Manufacturing, Every activity undertaken Human Capital Development, A) Managing Sustainability by UDB – whether it is long, Tourism, Infrastructure, and Risk at a Project Level medium- or short-term loans, Minerals, Oil & Gas sectors. We recognise that sustainable or other products and services socio-economic development Implementation of the to be defined, must contribute is integrally connected to the Monitoring and Evaluation to one or more development sustainability of the environment Framework and mainstreaming outcomes. UDB’s intended
and society. Application Deal Review Approval As UDB, we are committed to investing in activities that enhance environmental protection measures, Initial Screening Full Project Appraisal in compliance with the Pre Application Ugandan environmental All conditions precedent Financing Agreement Letter of Offer laws and international best practices pertaining, and that avoid negative environmental and social Perfection of securities Legal Documentation impact on communities.
Accordingly, the Bank has First disbursement Post implementation stage an Environmental and Social Management (E&S) Framework that is used for screening of projects Implementation stage Final project closure submitted for funding. The framework integrates E&S risk it in the business operations Development Impact can be management into UDB’s business remains a priority to the bank. specifically demonstrated by a processes. It helps the Bank The framework establishes what Theory of Change (TOC) diagram. to avoid transactions that may is measured, how it is measured, A Theory of Change establishes have significant environmental when it is measured and the the logical connection between and social risks by conducting roles and responsibilities for what the Bank does, why it does environmental and social due data collection, measurement, it, and how it contributes to diligence prior to financial analysis and reporting. This defined development outcomes. engagement. It will also helps is done with the purpose of: UDB’s contribution to economic the Bank to identify and manage choosing the right project that development is a function of time E&S risks of the Bank’s portfolio. shall maximize the development and attribution of UDB activities impact (application stage, to the result or development B) Creating Socio-Economic initial screening, deal review effect. UDB’s Theory of Change is Development Impact & approval); improving the illustrated below realisation of projected i) Introduction development impact (pre- The Bank recognizes that application and implementation Development Banks worldwide stage); and proving the actual play a pivotal role in the development outcomes/impact
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Table 1: Root-Core Development Impact Highlights
Turnover Profitability Tax Contribution Forex Earnings Job Created and/or maintained
Direct Lending
Contribute To Economic Inputs Outputs Outcomes Development Impact
Team Loans Improved Increase Uganda ia a private sector in GDP middle Equity access to Bank Increase in income Financing affordable country Resource finance GOU revenues BA & PP Improved Increase in Services health and private sector education and value chains outcomes Improved social and economic infrastractures
MISSION VISION ii) Overview of Development Outcomes 2019 UDB’s mission of accelerating socio-economic development through sustainable financial interventions remains optimistic with positive strides in 2019. The progress in 2019 also marked a transition into the new five-year sustainability strategy for the bank - meeting the needs of the present generation without compromising the ability of future generations to meet their own needs, particularly regarding use and waste of natural resources.
Ushs Billions US$ Millions 2019 1,795.5 177.5 141.7 95.84 28,313 2018 1,738.6 161.9 133.1 81.9 23,970 % change 3 9 6 15 15
There was positive progress registered across the five root-core performance indicators from table 1 above. Although not very significant, this points to hope for the achievement of the projected development outcomes. Annual turnover of firms increased by 3% from Ushs 1.738Tn in 2018 to Ushs 1.795Tn in 2019. Profitability of enterprises supported increased by 9% from Ushs161Bn in 2018 to Ushs177Bn in 2019. Foreign exchange earnings for the economy increased by 15% from US$81M in 2018 to US$95M in 2019. To further boost government efforts towards domestic revenue mobilization, enterprises supported by the Bank registered a 6% increase in tax contribution from Ushs 133Bn in 2018 to Ushs 141Bn in 2019. Tax contribution figures combines both corporation tax and pay as you earn. In 2019, corporation tax declined
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by 1% from 85% in 2018 to 84%, whereas PAYE increased from 15% in 2018 to 16% in 2019. Employment increased by 15%, an upsurge from 23,970 in 2018 to 28,313 in 2019. This implies that 4,343 new jobs were created as 23,970 jobs were maintained.
iii) Key Sustainability Highlights
a) Employment Generation
2018 2019 % Change Male 14,826 18,095 18 Female 9,144 10,218 11 Male Youth 8,056 12,120 34 Female Youth 2,594 6,975 63 Full Time Employee 9,078 18,872 52 Temporary Employee 6,665 9,159 27
M – Male; F – Female; MY – Male Youth; FY – Female Youth; FTE – Full Time Employees; TE – Temporary Employees
Overall, employment increased by 18% from total employment of 23,970 in 2018 to 28,313 in 2019, with an equivalent of 4,343 new jobs created. There was a 18% increase in male employment compared to 11% increase in female employment.
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There was 63% increase in female youth employment compared to 34% male youth employment from 2,594 in 2018 to 6,975 in 2019 and 8,056 to 12,120 in 2018 and 2019 respectively. Full time employment grew by 52% and 27% for temporary employment respectively. b) Annual Turnover Performance Overall, annual turnover increased by 3% from Ushs1.738Bn to Ushs 1.795Bn in 2019. Agriculture sector registered the highest contribution to annual turnover at 58%, followed by 23% in manufacturing and 13% in mineral, oil gas sector. Infrastructure, health, education and tourism contributed 3.4%, 1.7%, 0.8% and 0.1% respectively. The high increase in turnover in agriculture sector is attributed to creation of linkages within the value chain and the shift to value addition especially in agro-industries. In manufacturing, the growth in turnover is as a result of production of goods which were originally imported like PVC pipes and the growth of recycling industries.
c) Annual Profitability of Enterprises Supported There was a 9% increment in profitability of enterprises supported by the bank. Enterprises which maintain a profitable position is a relief to the bank as this reflect improved capacity to meets the operating cost (including loan repayment). Profitability impacts a company’s ability to secure financing from a bank, attract investors to fund its operations and grow its business. In 2019, profitability was high in the manufacturing sector at 71%, followed by 22% in agriculture sector. Mineral, oil & gas, health, infrastructure,
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tourism and education reported the least level of 3%, (for both health and mineral, oil & gas) while tourism and education both recorded less than 1% in overall profitability.
Performance of Foreign Exchange Earned
SECTORS 2018 2019 Percentage Change AGRICULTURE 48,743,967 51,503,730 5 MANUFACTURING 32,698,096 43,646,365 25 EDUCATION 37,449 105,672 65 HEALTH 260,000 350,000 26 TOURISM 123,251 188,802 35 INFRASTRUCTURE 44,800 49,280 9 M, OIL & GAS - - - Total 81,907,564 95,843,849 15
Foreign exchange earned e) Sector Performance of Tax Contributions increased by 15% in 2019. The Bank through the enterprises supported contributed to the The main leading sectors revenue mobilization to the government. The bank tracks the contributing to increased forex contributions from corporation tax and Pay as You Earn as her share of earnings include: Education, contribution to the domestic revenue mobilization narrative. Tourism, Health, Manufacturing and Infrastructure. Agriculture contributed 5% with 0% from mineral, oil & gas. The significant contribution from the education sector is attributed to increased number of foreign students in the schools/education services supported. The Tourism and hospitality sector registered over 70% foreign guests, significantly contributing to the forex earnings in 2019. In the case of health sector, this is the cost of treating non-Ugandans at the facilities supported by the bank, an infant stage of health tourism. The manufacturing and agro- industrialisation sectors also registered increase in exports In 2019, tax contribution increased by 6% from Ushs 133Bn in 2018 which attracted forex earnings. to Ushs 141Bn. Corporation tax contributed the largest share at 84% Foreign exchange earned through and 16% PAYE respectively. The manufacturing sector contributed exports plays an important 75% share of tax revenue, followed by 23% in agriculture. Health role in the growth process. It and education both contributed 1% whereas tourism, infrastructure, enables the country to import mineral oil & gas all had less than 1% contribution. In Uganda today, those machines and capital revenue mobilization remains a key development priority and goods which it cannot produce essential to finance investments in human capital and infrastructure domestically. This is capable to achieve the SDGs. UDBL contributes to Uganda’s effort to generate of further contributing towards and collect public revenues through taxes domestically to finance improving the balance of activities and services to improve healthcare, education, infrastructure payments for the Country. services among others.
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f) Green Finance Outcomes 2019 The green finance transition approach at UDBL builds on a dedicated climate and resource efficiency investments Allotment of Green Finance and Its Outcomes in 2019
Green Financed and Impacts Sectors Amount % GHG Water Primary No of jobs Allotment Reduced Saved (m3) Energy created/ (Ushs (tCO2e) Saved maintained Billions) (GJLHV) Primary 29.7 16.1% Agriculture 1,854 960 - 22,969 Manufacturing 66.5 36.1% 84,162 7,742 1,999,590 2,550 Grand Total 96.1 52.3% (Directed to Low-Carbon and Climate Resilient)
From the above table, the green finance portfolio toward emission sequestration and climate resilient was up to 36% (Ushs 66.47 Bn) for manufacturing sector and 16% (Ushs 29.65 Bn) for Agriculture sector, out of the total amount of funds (Ushs 96.12 Bn) invested by the bank in 2019. Other sectors contributed 0% to emission sequestration.
The 36% allotment of green g) Gender and Social that the labour requirements for finance to the manufacturing Inclusion primary and agro-processing are sector led to a reduction of less intensive as compared to GHG emission by 84,162tco2e, Among the enterprises manufacturing and infrastructure. saved 7,742m3 of water, resulting considered, the employment It should be noted that the into 2,550 jobs. Meanwhile, figures reported as at December employment slots taken up by the agriculture sector with a 2019 shows 64% share of male the women in the manufacturing, green finance allotment of employment compared to 36% education, tourism, and 16% reduced GHG emission by among the female counterparts. infrastructure are mainly skilled 1,854tco2e, saved 960m3 of water, Despite the overall widening labour as compared to primary maintaining/creating 22,969 jobs. employment gap reflected in and agriculture. The equal 2019, out of 10,218 females opportunity policy as well as its The high investment in the employed, 2,280 were employed gender strategy recognizes an manufacturing is mainly permanently and 115 were inclusive and equal participation concentrated in the plastics reported to be in the senior of persons with disability (PWDs) and paper recycling industries, management of their respective and women in its investments while for agriculture, mainly enterprises. This represents for sustainable socio-economic included establishment of mini- 22% of female employment growth and development. These water storage infrastructures reported in 2019 and 8% of the are aligned to SDG 5: Achieve such as earth dams and total employment in the same gender equality and empower livestock breed improvement period. This is very significant all women and girls and SDG 8: for drought resilience for high in achieving effective and Promote sustained, inclusive and milk productivity. There is sustainable operation. The sustainable economic growth, high potential to spur up low- proportion of women was highest full, and productive employment carbon and climate resilient in agro-processing at 78.9% and decent work for all. A total through proper green design followed by primary agriculture of 64 PWDs were employed in the and business models to harness at 8.3%, while manufacturing different enterprises supported this opportunity across all the at 6.7% and least in the as of 2019. This is further sectors. infrastructure sector at 0.1%. This explained in the chart below. is mainly attributed to factor
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C) SECTOR SPECIFIC INTERVENTIONS AND OUTCOMES During the year, UDB continued to effectively exercise its role as a key agent in the realisation of socioeconomic transformation in the country. The Bank undertook key business initiatives in 2019 which included:
— Roll out of a project in the year. This served not 2019. However, there is room for investment plan that only to garner new business, growth in other sectors of Human generated a pipeline of Ushs but also to improve our Capital Development, Tourism 238.1 billion, approvals of brand presence and expand and Infrastructure. Ushs 256.4 billion and new our geographical footprint. A total of 73 facilities worth Ushs disbursements of Ushs 183.9 256.4 billion were approved in billion; Overall Performance overview 2019. This was an increase from The Bank continued to register the 51 facilities approved in — The Project Preparation and an increasing trend in funding 2018. Manufacturing constituted Business Advisory Services with the gross loan book closing 42% of approvals, followed units introduced in 2018 were at Ushs 354.8 billion compared by primary agriculture and operationalised and have to Ushs 309.6 billion in 2018. This agro-industrialisation at 30%. shown a promising start. represented a 15% growth in the Support for manufacturing Likewise a policy framework loan portfolio. Manufacturing underscores the Bank’s was concluded for the Equity comprised the largest part of the alignment to government Financing product. book at 29%, closely followed by initiatives to industrialise as a means of transitioning to a — Implementation of regional Agro-industrialisation at 26% in middle income economy. The business clinics continued, line with government priorities Bank has been registering growth with West Nile and Kigezi and reflecting deliberate focus in these sectors in the last 4 regions being the main focus in those sectors in the year
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years. Continued growth of the in disbursements in 2018. This agro-industrialisation, which primary agriculture and agro- is reflective of concerted sales accounted for 38%. industrialisation book mirrors drives augmented by improved a deliberate drive to support and streamlined internal Below is an over view of our agriculture along its value processes, increased human interventions in the key priority chain in line with government resources and new funding sectors and impact created. priorities. that was effectively utilised. Manufacturing accounted Disbursements in 2019 for 42% of disbursements in amounted to Ushs 183.9 billion 2019 ahead of agriculture and compared to Ushs 154.6 billion
Primary Agriculture And Agro-Industrialisation Sector Agriculture And Agro-Industrialisation Value Chain Sector Focus — Promote investment in federations and co- storage infrastructures to Increase agricultural operatives. reduce post-harvest losses. production and productivity — Enhance Sustainable Land Management Practices (SLM). Sector Specific Challenges — Strengthen ecologically sound agricultural research — Promote time and labour- — Increased adulteration and and climate change resilient saving technologies targeting limited supply of agricultural technologies and practices. women farmers. inputs — Increase access to Increase access to critical — Low access to credit agricultural finance services. farm inputs — Natural uncertainties and — Accelerate the development risks like drought, pests and and commercialization of — Improve access to high diseases the prioritized agricultural quality animal breeds, seeds commodities. and planting materials. — Climate change challenges
— Increase market access and — Enhance access to and use Sector Specific Stakeholders improve physical agricultural of fertilizers by both women and Engagements infrastructure. and men. — Food and Agriculture — Control pests, diseases and — Increase access to water Organisation vectors. for agricultural production — Uganda Coffee Development — Develop early warning (Irrigation, water for Authority systems to prevent and livestock, aquaculture-fish — United Nations Capital mitigate shocks affecting ponds/ caging). Development Fund nutrition and food security. Increase agricultural — Private Sector Foundation of — Promote commercialization mechanization (Farm Power). Uganda of agriculture particularly amongst small holder — Improve agricultural markets — Farmer Associations & farmers. and value addition for the 12 Cooperatives prioritized commodities — Uganda National Farmers — Strengthen Farmer Group Federation formation and cohesion — Promote private sector including commodity investment in value addition. — Agence Française de associations, platforms, Développement (AFD) — Build capacities of farmers, trades and processors in — Diary Development Authority quality standards and market (DDA) requirements.
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— Ministry of Agriculture, — Complete the accreditation use of water resources Animal Industry and Fisheries process for accessing climate for irrigation, livestock & (MAAIF) change finance aquaculture — National Agricultural Advisory — Enhance the capacity of — Support women & youth Services (NAADs) the Bank to manage & entrepreneurs in the operationalize the climate — National Agricultural agricultural value chain. change finance including Research Organisation participating in climate — Support multiplication of — Operation Wealth Creation change capacity building improved seed varieties (OWC) training. — Uganda Industrial Research — Outsource the services of — Develop collaborative Institute (UIRI) experts in areas of crop arrangements with research institutions and mandated — National Animal Genetic & livestock husbandry, agencies such as NARO, Resources Centre & Data mechanization and food NAADs, MAAIF. Bank (NAGRC) science in providing capacity building support/advisory services to farmers. UDB Interventions — Support the construction of small-scale irrigation — Use of apex and group schemes for sustainable lending models to provide access to credit
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Financial Outcomes Size of portfolio Ushs 156.79 billion (2019) Ushs 132.11billion (2018)
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Primary Agriculture and Agro- credit at concessional terms for viable, environmentally friendly Industrialisation this sector. The Bank of Uganda and SDG aligned investments Agricultural Credit Facility (ACF) in agriculture; and (ii) make Uganda’s long-term goal is to and the Kuwait Fund continue selected food value chains industrialize and transform to be a major support in UDB’s more attractive for UDB banking the structure of the economy agricultural initiatives. through systematic policy by 2040. Given the dominance dialogue and technical assistance The Bank continued to make of agriculture as a source of to value chain actors. livelihood for the majority of use of both the Apex and Group Ugandans, agro-industrialization lending model, which has The project is aligned with offers a great opportunity allowed thousands of small (i) Uganda’s Green Growth for the country to embark on holder farmers across the Development Strategy 2017/18- its long-term aspiration of country to enjoy modest but 2029/30 and with the country’s transitioning into a modern nonetheless critical credit that long- and medium-term industrial economy. Uganda has a they would not have access to strategies; (ii) FAO’s country positive trade balance for agro- in conventional commercially programming framework; and (iii) industrial products and this can oriented financial institutions. European Union (EU) Delegation be improved by tapping into the Under this model, a lumpsum Inclusive Green Economy sector. is granted to an intermediary growing local market of agro- The project also builds on financial institution or organised manufactured products and fully FAO recognized capacity on farmer group/society for onward exploiting opportunities available technical assistance with lending to individual members in international markets through specific focus on food security, or clients. The on-lent amounts export promotion. In addition, nutrition, agriculture and rural can be as low as Ushs 2 million the backward and forward development and climate- for an individual small farmer linkages between agriculture smart agriculture (CSA) as well but may not exceed the Ushs and agro-industries will help as FAO Investment Centre’s equivalent of USD 25,000 per Uganda to upgrade agro-value long terms project design and individual. This mode of lending chains and create employment implementation capacity and leverages on the collective clout for its citizens. By strategically policy dialogue experience at and competencies of the Apex and sufficiently investing in the value chain level. agro-industrialization agenda, body or Farmer group, which Uganda will realize a transformed significantly de-risks transactions AGRA Agriculture Finance agricultural sector that is directly making them more attractive Strategy:- The bank in linked to agro-industry. to the Bank. The Bank has also partnership with Alliance for a supported a number of projects Green Revolution in Africa (AGRA) Funding Activity that process agricultural produce are developing an agriculture in acquisition of machinery finance strategy and systems that During the year, the Bank’s and providing working capital will address the gaps and set a approved an additional funding requirements. direction of finance. The initiative to the sector of Ushs 77.89 billion shall develop a clear agriculture compared to Ushs 116.2 billion finance strategy that addresses in 2018. Ushs 69.1 billion was Stakeholder Engagement the needs of Small, medium, disbursed in the same year up Activities in the Sector large farmers, agro processors from Ushs 57.2 billion disbursed and value chain actors such as in 2018. Total funding approved FAO AGRI- INVEST:- During the Agricultural SMEs and Farmer between 2014 and 2019 totaled year, the Bank engaged with groups to effectively participate Ushs 371.4 billion out of which the Food and Agricultural in the agricultural transformation Ushs 234.32 billion had been Organisation (FAO) to undertae a in Uganda. disbursed as at 31 December project aimed at strengthening 2019. blended finance in Uganda French Development Agency through building capacity of (AFD) Technical assistance: - the The Bank continues to support Uganda Development Bank to Bank engaged with AFD for a projects in agriculture across de-risk and increase returns technical assistance program the value chain from primary on its agriculture lending and geared towards transforming production (inputs, post-harvest investment portfolio. Expected small holder farming and handling and land opening outcomes will include (i) promoting value addition through among others) to value addition. enhancing UDB’s capacities to affordable finance and technical The Bank has designated lines of identify, appraise and finance assistance. The technical
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assistance will help enhance Outlook project knowledge needed in In 2020, the Bank will ride on the initiatives and partnerships identification & eligibility of undertaken during 2019 to strengthen its interventions in the sector. projects; build capacity of the In addition, the Bank targets to increase its funding approvals and small holder farmers in managing disbursement to Ushs 149.7 billion and Ushs 106.9 billion respectively agricultural enterprises; build to support the above initiatives. capacity of agriculture value chain partners; and enhance Below are some of the projects we financed in 2019: the capacity of UDBL staff in risk management, appraisal/ structuring of agriculture projects and project monitoring. Case Studies UDB - National Agriculture Research Organisation (NARO) Sanga Dairy Farmers’ Cooperative Society Ltd (SDFC) Partnership:- In order to Sanga dairy farmers’ cooperative society ltd (SDFC) has been in promote research and make existence since 2012 located in Kiruhura district at Sanga trading it more productive to both centre. SDFC currently has 300 members. With financing from UDBL, the researchers and the local milk production and sales have more than doubled from Ushs population, the Bank engaged 331,417,800/= in 2014 to Ushs 2,334,358,260. The good performance with NARO to form a partnership is attributed to the Bank’s intervention towards acquisition of aimed at commercializing cooling equipment, purchase of high milk yielding cattle breeds and production and multiplication of improvement in feeding. climate resilient and sustainable inputs (varieties, breeds, chemicals) and technologies; and promote modern and climate smart methods of production and preservation of livestock feeds (hay, silage, mash among others).
Development outcomes In 2019, the sector had the highest contribution to jobs created/maintained and foreign exchange income earned. Approximately 22,969 jobs were maintained/created representing a 19% increase from 2018; US$ 51.5 million in foreign exchange earnings was made and tax contribution averaged Ushs 32.4 billion from Ushs 5.01 billion in 2017. There was also a 27% increase in land tilled from 264,703 acres in 2018 to 362,785 acres in 2019. The number of farmers supported increased from 197,369 in 2018 to 225,177 farmers in 2019. Further investments in this sector are expected to increase employment levels, improvement in private sector performance and additional tax contributions to the economy in the coming year.
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Bwendero Dairy Farm is operational, and the factory when it was damaged by Limited-Hoima (“BDF” or “the currently employs 240 operators, storm. 91 cane truck and agricultural Company”) • BDF provides up to machinery drivers and 379 casual 70,000 tree seedlings to is an agro-industrial firm located laborers working in the cane communities of Kitoba and in Hoima District. The farm has fields. a blend of primary agriculture Bubaale each year. The cane needed for the (crop &livestock) and agro • BDF provides employment factory lies on 1,583 hectares processing(maize milling, modern opportunities to more than of land developed by BDF and grain handling and storage 400 workers where 90% 37 hectares developed by out facilities, in distilling local/ are residents of Kitoba, growers. industrial gin using molasses and Hoima district. The company has recently developed a sugar Within the past four years, BDF continues to provide factory with financing from the has undertaken various projects technical training to many Bank. for the good of the community. school dropout youths of BDF current factory operations These are some of the CSR Kitoba such as driving skills, comprise of a 30,000 litre per day activities offered to the citizens auto mechanics, welding distillation plant, 168 TPD maize of Kitoba and Hoima at large. and fabrication, brick-laying, electrical wiring, electrical / cassava mill, a 70TPD Starch • Building of a Ushs 180 million motor-rewinding which in fermentation Plant, and a 12TPD maternity ward at Kitoba turn reduce crimes in Kitoba Food Grade Carbon Dioxide Plant Health Centre-III. and a processing plant of 750TCD sub-county as the youths crushing capacity. The syrup • Upgrading (repairing) roads become occupied. in Kyabasengya on request machinery has already been • Installed 5 bore hole water from the local government. installed and the crystallization pumps in Dwoli, Kizzi and machinery is in the final stages • Repaired 50% of roof of Bubaale. of installation. The syrup section Kibanjwa primary school
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Twin Brothers Limited workers each season alongside forex earnings since all their lint the over 1,000 farmers that is exported. This contributes Twin Brothers Ltd (TBL) is one they source their cotton from to the dollar pool in the of the leading cotton ginneries and have remained a strong economy and comes to over in the northern region situated contributor towards the forex $1m annually. The company in Aduku, Apac district. The earnings for the country since sources cotton from over 1,000 company operates Aduku ginnery they export their cotton. The farmers in the northern region. in Lira district as well as an oil company has been a customer Considering that cotton is one mill in Lira town. Their business of the bank for almost 10 of the traditional cash crops for involves, buying, ginning and years now, with the bank’s Uganda, providing a market at marketing of lint, cotton cake and intervention including the a local level encourages more oil. procurement of an oil mill as farmers to participate in planting The company sources its cotton well as availing working capital the crop. Taxes of over Ushs from over 1000 farmers in the each season to support the bulk 150 million have been paid by northern region of Uganda, purchase of seed cotton. The the business annually for the mainly located in the districts bank’s intervention has enabled last five years. The company of Lira, Kole, Apac, Gulu, Otuke, the company to maintain their supports industrialisation. The Oyam and Pader. It gins and position as one of the leading lint produced encourages set exports their cotton to their ginneries in the Northern part up of textile industries due to regionally and international off of Uganda and has promoted availability of raw materials takers. The company provides exports and generation of locally. employment to over 100 casual
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Manufacturing Sector
Manufacturing Value Chain — Establish and foster a — High cost of credit and national Innovation System unfavourable short tenures Sector Focus for proper and adequate that have resulted into exploration of Research and financial distress for 1. Promote the development Development (R&D) outputs manufacturing businesses in of value added industries in and promote emerging key growth sectors. technological needs. agriculture and minerals. — Inadequate technical, — Promote and support production & management — Develop an agro-processing technology development, skills in industries. industrial park. acquisition and transfer. — Stagnation of Uganda’s Export — Develop locally — Support and incentivise the Volumes by value. manufactured goods through private sector to contribute supporting Micro, Small and — In adequate funding to to innovations, research and Medium Size Industries. promote commercialization of development. projects that have undergone — Build capacity of key — Strengthen the legal successful incubation stakeholders in specific framework associated with targeted skills needed for intellectual property rights. Sector Specific value addition. Stakeholders and — Strengthen the existing 4. Promote green industry network of vocational and and climate smart industrial Engagements technical training institutions initiatives. — Uganda Manufacturers to cater for the required Association skills. — Popularize and encourage efficient and zero waste — Private Sector Foundation — Support commercial technologies and practices. Uganda exploitation of key minerals especially iron ore, — Establish and support — Uganda Export Promotion phosphates, and dimension climate innovation centres Board to support investment in — Uganda Chamber of stones. industries producing and Commerce adopting green technologies. 2. Increase the stock of new UDB Interventions manufacturing jobs. — Develop decentralized village-based agricultural — Provide affordable financial — Attract labour intensive light processing centres that support towards promoting manufacturing industries. incorporate low carbon labour light manufacturing sources of energy, such as — Strengthen technology industries and, acquisition biogas-digesters and solar adaptation and acquisition & transfer of appropriate driers; and including availability of technology. advisory services to support — Build carbon trading capacity — Provide equity funding to local manufacturers. within the private sector to start-ups and support these harness innovative funding — Fast track the development through to growth. opportunities provided of industrial parks. by Clean Development — Provide business advisory services to SMEs. 3. Promote and accelerate the Mechanisms (CDM) and use of research, innovation voluntary carbon markets. — Complete the accreditation and applied technology. process for accessing climate Sector Specific change finance — Establish national and — Leverage the Bank’s balance regional technology Challenges sheet to get alternative incubation centres for — High start-up costs for Small, financing sources so as to nurturing SMEs and start-up Micro and Medium size become an engine for the enterprises. Industries roll-out of long-term financing
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where at least %50 of credit to — Support incubation centres has the potential to more manufacturers is long term in & innovative concepts for than double the value of nature in the next two years. nurturing SMEs and start- up Uganda’s current exports enterprises with the view volume. — Leverage the South to to harness local technology South Cooperation with — Collaborate with Research innovations & adoption rate. governments and government Institutions/ other vehicles for applied — Leverage the existence of stakeholders in the technology equipment the African Trade Insurance country in promoting sourcing from technology Agency and Export Credit the commercialization of exporting countries. Guarantee that can technology incubations guarantee payment for in support of SMEs — The bank increased its long- exports to especially volatile development. term loans tenure from 10 to countries. This intervention 15 years.
Financial Outcomes Size of portfolio Ushs 104.42 billion (2019) Ushs 93.94 billion (2018)
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The manufacturing sector is 43.6 million in foreign exchange the company is acquiring poly characterized by limited value earnings was made and tax bag making plant to manufacture addition with very few capital contribution averaged Ushs 106 packaging bags. goods industries and very low billion from Ushs 100.7 billion in utilization of manufacturing 2018. • Kiddawalime Bakery Ltd capacity. This is further employs 1,550 staff on manifested in the absence of Outlook permanent basis; these manufactured products in the include drivers involved In 2020, the Bank has export basket. The Government is in distribution, bakery expectations of increasing therefore keen on diversifying the staff in the 12 branches funding to this sector with country’s manufacturing sector. country wide, those targeted new funding approvals Government aims to promote running outlets, staff of Ushs 89.2 billion. The Bank will sustainable industrialization and in the wheat mill. The continue to seek to address key appropriate technology transfer number is expected to sector constraints such as the and development and increase grow after installation of lack of competitively priced long the sectors contribution to GDP. the Poly Bag making plant term funding sources; stagnation that is expected to be of Uganda’s export volumes by Funding activity commissioned in in mid- value; inadequate technical, March 2020. During the year, the Bank’s production and management approved additional funding to skills in industries and • The company’s the sector of Ushs 107.48 billion inadequate funding to promote contribution to the compared to Ushs 113.06 billion commercialization of projects revenue tax collections in 2018 and Ushs 55.5 billion that have undergone successful is expected to increase in 2017. Ushs77.7 billion was incubation. once the plant is disbursed in 2019 compared to commissioned. Ushs 80.8 billion in 2018 and Case Study • The company supports Ushs 37.9 billion in 2017. Total government initiatives funding approved from 2014 to Kiddawalime Bakery Limited- of promoting food 2019 totaled Ushs 360.5 billion Wakiso security through its wheat out of which Ushs 236.21 billion processing plant. had been disbursed as at 31 Kiddawalime Bakery Ltd is a December 2019. leading bakery agro-processing/ • The country is set to manufacturing company in gain from technological The Bank’s intervention has Uganda. It owns a wheat transfer. The wheat mill mostly been with respect to processing plant, Bakery with12 technology used by acquisition of new machinery branches/bakeries country Kiddawalime Bakery is to expand capacity, as well as with outlets in all major towns from Italy and is known working capital to support the of Uganda and manufactures to be unique and able to increased production. gunny bags used in packaging save up to 78% in grain to agricultural produce all financed flour conversion. Stakeholder Engagement by UDBL. The Bank supported Activities in the Sector Uganda Manufacturers Association remains a key strategic partner in the delivery of our mandate. The Bank continues to work with the association as a channel of information dissemination and source of new business and continues to participate in its events when called upon.
Development outcomes In 2019, approximately 2,815 jobs were maintained/created; US$
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HUMAN CAPITAL DEVELOPMENT SECTOR
Under the Country’s National Outlook Development Plans, Human In 2020, the Bank has expectations of increasing funding to this sector Capital Development is one of with targeted new funding approvals of Ushs 20.2 billion. The Bank the key fundamentals that need will continue to address key sector constraints such undeveloped to be strengthened to accelerate infrastructure that impacts on the quality & access to educational and the country’s transformation and health services and limited skills of Women & Youth that limits their harnessing of the demographic active participation in gainful economic activities amonth others. dividend. Key areas under this priority are education and health where key interventions have been identified to help drive growth in these areas. The focus of the Bank in education will continue to be on tertiary institutions, particularly those with a vocational skills component. A gap was identified in the possession of appropriate skills on leaving formal education and UDB has undertaken to support efforts towards bridging this gap.
Funding activity During the year, the Bank approved funding of Ushs 14.77 billion compared to Ushs 1.71 billion in 2018. Ushs 4.6 billion was disbursed in 2019 compared to Ushs 2.85 billion in 2018. Total funding approved from 2014 to 2017 totaled Ushs 34.1 billion out of which Ushs 18.8 billion had been disbursed as at 31 December 2019.
Development outcomes Overall, the sectors contribution towards jobs created/ maintained marginally increased by 5% with 58 new jobs created. The sector contributed Ushs 510 million in tax contribution to the economy and US$ 455,672 in foreign exchange were earned in 2019. With respect to health services sector, there was an additional 5,060 patient served during the year in hospitals funded by the Bank.
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Institute of Health Promotion & Training Uganda LTD-Ntungamo Institute of Health Promotion and Training Uganda Limited (‘IHPTL’) runs the St. John’s School of Nursing located in Rwashamaire Ntungamo. The school offers vocational nurses training. It commenced operations in 2009 and got a license in 2011 under provisional registration number ME/VOC/126. It has since been fully certified to offer certificate courses in Nursing and Midwifery vide license number MOES/ BTVET/ 225 issued in August 2018. The Bank provided financing to the Institute for the construction and furnishing of a 3-storey classroom block. Once completed, the project is expected to provide the much-needed human resource to help community health centers in and around the country. This project shall indirectly contribute to the reduction of infant maternal mortality as well as maternal mortality by graduating well trained nurses who shall fill the gap that currently exist in other parts of the country. The Institute has a MoU’s with Itojjo Hospital, Kambuga Hospital, Kitagata Hospital, Rushere Community Hospital and other Health Centre IVs for training attachment of the nurses and midwives.
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Tourism Sector Outlook been relatively modest in the In 2020, the Bank intends Tourism is one of the sectors last 3 years. However, efforts to develop a tourism sector with plenty of great growth are being made to reverse the strategy to drive impactful potential yet to be exploited. trend with more approvals and investment in the sector. The The sector has been prioritized disbursements being made in the Bank’s interventions will include given the fact that the required coming years. financing the increase of tourism investments for the sector are Funding activity infrastructure at affordable/ low relative to the potential favorable terms in line with the returns and it needs to be In 2019, an additional Ushs 14 business dynamics of the tourism enhanced by government and billion was approved for funding sector; finance the development private sector. Tourism is fast towards the sector compared of new and upgrade/maintain replacing traditional crop exports to Ushs 10.43 billion in 2018, the existing tourist attraction as a key foreign exchange earner. an increase of 34.3%. Ushs 7.1 sites profiled by region; enhance billion was disbursed during the pool of skilled personnel In this regard UDB has sought the year compared to Ushs along the tourism value chain by to support development of 3.09 billion disbursed in 2018 financing establishment of tourism infrastructure especially in the representing an increase of 130% /vocational training institutes main tourist belts of the country, in funds disbursed. Total funding that can nurture local hospitality namely regions bordering approved from 2014 to 2019 sector enterprises for participation national parks or thoroughfares totaled Ushs 30.2 billion out of in local, regional and global to main tourist attractions. The which Ushs 14.2 billion had been tourism value chains; establish a sector is a growing one and disbursed as at 31 December tourism investment fund to enable the Bank’s intervention has 2019. private investors to get access to affordable credit.
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Financial Outcomes Size of portfolio Ushs 12.29 billion (2019), Ushs 7.99 billion (2018)
mid range lodge with 10 chalets The project will contribute to Case Studies built of local materials and the country’s foreign exchange thatching, 2 tents, a conference earnings and tax revenue; The Alpha Leisure Center Ltd- facility and gardens(for weddings 22 jobs openings have been Kitgum and functions). With luxurious created permanently upon rooms opening onto the garden, project commissioning and The Alpha Leisure Center Ltd this is a great option for guests many others mainly service (ALC) was granted a facility to looking for an intimate stay in providers/ suppliers to the construct a tourist leisure centre/ a tranquil setting. It is a cool hotel; and the project will create stopover in Kitgum Municipality resting point strategically located market for food crops around on the highway to Apoka-Kidepo between Kidepo and Murchison the neighbouring community National Park and near St. Janan Falls National Parks and is and create a multiplier effect for Luwum Shrine at Mucwini. ALC near St. Janan Luwum’s Shrine business in the district. has since setup Acaki Lodge with Mucwini. UDBL financing. Acaki Lodge is a
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Hotel Africana (Moroto) Ltd-Moroto
Hotel Africana (Moroto) Ltd • Employment: On assured of good office (HAML) was incorporated on 08th completion of the project, space with financial April 2015 as a separate legal 40 staff personnel are services nearby. entity but with affiliation to Hotel expected to be employed • Marketing the culture of Africana Kampala. HAML project on a permanent basis. locals: The facility will be is located 4 Km from Moroto This doesn’t put into built with provisions for central business district of the consideration the entertaining the tourists Karamoja region along Pader- external employment and other people on Moroto road. Through financing opportunities created by leisure; this will help to from the Bank, the company has the project. market the local cultures set up an ultra modern hotel • Tax contribution: The enabling the local with 46 deluxe guest apartments, hotel will contribute performers to earn an 22 cottages, 3 conference halls, towards the tax revenue extra income. restaurant & dinning, business collections over the tenor centre and other amenities. • Increase in the number of the loan. The social economic impact to of tourists – with quality be created by the project will • Contribution to the accommodation and include: development of the area: related services coming The hotel project will with the hotel project • Foreign exchange be one of its kind in the high end tourists visiting earnings: HAML projects Karamoja area at a 4-star karamoja region will a 30% of total revenue level. Accommodating increase as they will be collection in USD which space for banks and assured of a comfortable overall will contribute to office space. This will accommodation and the USD currency pool attract organizations resting/recreation place. within the country. and investors as they are
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Infrastructure Sector financial solutions to local towards creating a conducive Government is responsible for content to enable them favorably environment for doing business. creating conducive economic compete for contracts in major environment through investing Outlook infrastructure projects. in infrastructure (i.e. transport, In 2019, the Bank recruited a energy, ICT, water for production Funding activity dedicated resource to oversee infrastructure; and oil and The Bank approved funding of its investment in this Sector. In gas related infrastructure), Ushs 37.1 billion in 2019 compared 2020, the Bank will develop and promoting and regulating the to Ushs 14.03 billion in 2018. An implement a financing strategy business environment. Over the additional Ushs 13.4 billion was to ensure that its resources medium term, Uganda’s focus is disbursed in 2019 compared to are channelled to the right on enhancing competitiveness Ushs 3.8 billion in 2018. The total investments within the sector. of the economy which requires funding approved from 2014 to The Bank in 2020 anticipates lowering cost of doing business 2019 totaled Ushs 102.8 billion generating new funding and increasing productivity. out of which Ushs 36.94 billion approvals of Ushs 31.8 billion Therefore infrastructure had been disbursed as at 31 towards addressing the lack of development in Uganda has been December 2019. capacity in local companies, prioritized as the major source of to support local content in the growth for key priority sectors of Development outcomes Infrastructure development the economy in form of creating Through the Bank’s interventions projects in the country; and an enabling environment as in supporting local content, limited power generation guided by the Country’s National the investments in this sector capacity in the country leading to Development Plans. have generated employment high energy cost. UDB’s focus in this sector will with 96 new jobs being created mostly be through providing in 2019 and overall contributed
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Financial Outcomes Size of portfolio Ushs 23.8 billion (2019) Ushs 21.45 billion (2018)
Financial Sustainability dividends to our shareholders, much we re-invest for future salaries to our employees, tax growth. The value-added is For a detailed discussion on the to the Ugandan government as calculated as the Bank’s revenue Bank’s financial performance, well as support local businesses performance minus payments please refer to the financial through the procurement of such as cost of services, review on page 108 of this annual goods and services. depreciation and amortization. report. The resulting amount is Below is the Bank’s value-added distributed to the stakeholders As a Bank operating within the statement which indicates who include employees, Ugandan economy and whose the wealth that UDB creates shareholders, community mandate is pivotal in promoting through its activities for our investments and government. socio-economic development key stakeholders, being the in this country, we must ensure shareholder, employees, The total wealth created by the that we operate sustainably. This development partners and bank in 2019 was Ushs 37.49 will, therefore, allow us to pay suppliers. It also illustrates how billion as shown in the value- added statement below.
2019 2018 %
Ushs ‘000
Interest income 42,021,779 35,463,324 Interest expense (3,104,553) (2,217,024) Wealth created from operations 38,917,226 33,246,300 Foreign exchange gains (73,394) 43,070 Other income (1,358,722) 5,587,550 Total wealth created 37,485,111 100 38,876,920 100 Distribution of wealth Retained for growth 10,140,260 9,486,394 24 Employees 11,375,982 9,172,169 24 Government 5,244,994 4,107,403 11 Suppliers 8,711,422 7,516,011 19 Impairment loss on financial assets 1,403,807 7,910,558 20 Depreciation and amortisation 608,646 684,385 2 Total wealth distributed 37,485,111 100 38,876,920 100
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UDB’s Role in Supporting the Sustainable Development Goals At the core of UDB’s strategy is To this end, we ensure that the The United Nations adopted 17 its desire to make a substantial projects we support implement Sustainable Development Goals contribution towards the appropriate mitigation to (SDG’s) to shape a development achievement of the Sustainable curb any adverse effects on agenda until 2030. The Bank Development Goals (SDGs). UDB the environment, climate and has adopted the SDG’s and it is fully committed to engendering weather, among others. At UDB, has identified seven of these the sustainability agenda in we believe we have critical role to goals where its activities will Uganda by not only ensuring that it play in enabling the transition to have a direct impact. The Bank’s champions various efforts geared a modern economy - an economy activities are also linked to towards fostering sustainability that is greener, more digital and the objectives of the National but also by ensuring that all our more inclusive. Development Plan (NDP). interventions are sustainability- conscious.
The table illustrates UDB’s sector focus relative to the SDG outcomes
SDG outcome UDB Sector Focus
End hunger, archieve food security and Agriculture and Agro- improved nutrition and promote sustainable industrialization agriculture
Ensure healthy lives and promote Human Capital Developmemt well-being for all at all ages
Ensure inclusive and equitable quality Human Capital education and promote lifelong learning Developmemt opportunities for all
Achieve gender equality and empower all Human Capital women and girls Developmemt
Promote sustained, inclusive and sustainable Manufacturing, Agriculture economic growth, full and productive and Agro-industrialization employment, and decent work for all.
Build resilient infrastructure, promote Manufacturing inclusive and sustainable industrialization and fosterinnovation
Protect, restore and promote sustainable use Agriculture-(Forestry) of terrestrial ecosystem, sustainably manage forests, combat desertification, and halt and reverse land degradation as well as biodiversity loss.
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Financial Sustainability Financial sustainability remains a priority for the Bank in its efforts to drive socio-economic development in the Country.
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Financial Sustainability
Financial sustainability remains a priority for the Bank in its efforts to drive socio-economic development in the Country.
FINANCIAL PERFORMANCE OVERVIEW Five-year extract from the Bank’s annual financial statements
Financial Statistics 2019 2018 2017 2016 2015
Statement of Comprehensive Income Gross Interest on loans 42,022 35,463 22,919 17,759 16,339 Net Interest and fee Income 38,917 33,246 21,874 18,406 16,966 Net impairment loss on financial assets (1,404) (7,910) (3,865) (4,116) (11,443) Non-Interest Income (net) (1,432) 5,630 8,440 6,693 9,005 Operating expenses (20,696) (17,373) (14,573) (11,890) (11,750) Profit before income tax 15,385 13,594 11,876 9,093 2,778 Profit for the year 10,140 9,486 8,306 6,449 1,911 Statement of Financial Position Loans and advances (Net) 334,415 276,694 224,286 168,798 141,547 Balances with other banks 103,147 44,383 29,797 11,904 12,132 Investment properties 31,473 34,796 32,800 30,200 29,100 Total assets 486,365 370,118 297,471 226,427 205,557 Capital and reserves 347,483 253,612 204,448 156,541 141,548 Total liabilities 138,882 116,506 93,023 69,886 64,009 Statement of cash flow
Cash flow used in operating activities (43,970) (49,846) (39,900) (8,289) (41,735) Net cash (used in)/generated from (68,803) 7,527 (16,112) 3,079 6,716 investing activities Net cash generated from financing 103,841 65,737 58,234 7,095 17,293 activities Key financial ratios Yield on interest bearing instruments 11.6% 12.3% 10.3% 10.7% 11.6% Net interest income margin 92.6% 94% 95% 98% 99% Cost income ratio (without impairment) 55.2% 45% 48% 47% 45% Cost income ratio (with impairment) 58.8% 65% 61% 64% 89% Return on assets 2.6% 2.8% 3% 3% 1% Return on equity 3.7% 4% 5% 4% 1% Loan impairment ratio 10.6% 10.6% 7.6% 8.0% 7.9% Debt equity ratio 33.8% 38% 38% 36% 38%
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The Bank realised a profit for and seek alternative ways of 33.2 billion in 2018. Interest and the year of Ushs 10.14 billion, raising financing to invest in similar income grew by Ushs 6.5 registering a 7 % growth from the small, medium and large scale billion (18%) in 2019 as a result of Ushs 9.4 billion realized in 2018 projects with high potential for a 15% growth in the gross loans as a result of continued growth development impact on the and advances. in funding and capitalisation of economy. Interest expense and similar the Bank coupled with increase charges also increased by 40% in loan disbursements to Ensuring Financial Sustainability to Ushs 3.1 billion from Ushs 2.2 development projects. billion in 2018 as a result of 22% In its efforts to remain financially A review of the Bank’s financial increase in borrowings arising sustainable in the foreseeable performance for the financial from new lines of credit of Ushs future, the Bank intends to year 2019 compared to 2018 is as 49.1 billion secured by the bank digitise its operations to drive follows: in 2019 compared to Ushs 42.8bn productivity and increase Interest Income drawn down in 2018. efficiency gains, fast track the implementation of it funding Net interest increased by 18% and capitalisation strategy to Ushs 38.9 billion from Ushs
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Other Income Borrowings from development partners Other income reduced by Borrowings comprise lines of credit sourced from other Development 44% to Ushs 2.0 billion from Financial Institutions (DFI’s) for the sole purpose of supporting the Ushs 3.7 billion in 2018. Other development mandate of the Bank. During the year, the Bank drew income includes Ushs 3.3 billion down Ushs 49.1 billion which was used in supplementing existing loss on investment property funding to grow the loan book. The drawdowns gave rise to growth in realized as a result of the void borrowings by 23% to Ushs 70.5 billion from Ushs 57.5 billion in 2018. period following the exit of the Government of Uganda capital contribution anchor tenant from the bank’s investment property during the The Government of Uganda continued to capitalise the Bank year. throughout 2019 with additional capital of Ushs 87.7 billion injected into the Bank in 2019 compared to Ushs 49.1 billion in 2018. This gave Net Impairment Loss and write rise to an 84% increase in total capital contribution in 2019 to Ushs off of loans and advances 183.9 billion from Ushs 100 billion in 2017. The capital contributions The impairment charge on the remain key in facilitating the growth in the Bank’s loan portfolio. loan portfolio reduced by 82% Retained earnings in 2019, equivalent to Ushs 6.5bn, mostly due to a step The bank’s retained earnings increased by 19% due to profits of Ushs up in the collection efforts 10.14 billion registered during the year. by management for non- Gross Loans and Advances performing facilities coupled with refinement in the inputs for Gross loan and advances increased by Ushs 45 billion (15%) during the IFRS 9 impairment model, the year compared to a growth of Ushs 67 billion (28%) in 2018. Ushs 2019 being the second year of 183.9 billion was disbursed to projects in 2019 compared to Ushs implementation of the IFRS 9 154.5 billion in 2018 representing a 79% growth in disbursements. requirements. The growth in the funding base of the Bank, the capital and interest repayments and the internal profits continued to support the growth Operating expenses in the loans and advances. Operating expenses increased by 19.1% to Ushs 20.7 billion in 2019 from Ushs 17.4 billion in 2018 majorly due to increased staff costs and staff development activities. There was an increase in staff headcount from xx in 2018 to xx in 2019 following the adoption of a new organizational structure. The cost-to-income ratio with impairment decreased to 59% from 65% in 2018 while that without impairment increased to 55% from 45% in 2018.
Strengthening The Financial Position Of The Bank The bank’s total assets increased by 31% to Ushs 486 billion as a result of an increase in the Government of Uganda capital contribution and a drawdown of approved lines of credit. Below is a brief review of the Bank’s major assets and liabilities and how they impacted the performance above:-
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Human Capital At UDB, we deliberately invest in making the Bank a career- rewarding and great place to work. In tandem with our Human Capital Strategy, we recruit the very talented individuals, and in a congenial environment, provide them opportunities to learn, thrive and grow”
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Human Capital
Felix Okoboi, Board Chairman UDB awards Peter Emoi, one of UDB Staff cut a cake at the launch of the UDB Ideas the winners of the UDB Ideas Innovation challenge with a fully Innovation Program. paid trip for two to Dubai.
For any organisation to effectively —— Appropriate Total Rewards to facilitate continuous achieve its strategic aspirations, & compensation: The Bank engagement and interactions its’ people (i.e. its’ human capital) implements a compensation amongst our staff. must be well attuned, with structure that is competitive appropriate skills, behaviours relative to the market, and —— Facilitating learning: Being and motivation. Against this that rewards individuals for a DFI that provides unique backdrop, UDB implements varied their relative contribution interventions, we strive to approaches towards identifying, and skills. The bank also develop and grow our staff nurturing and retaining its human offers her staff a variety of into specialists at their capital. Through a diverse value attractive perquisites and identified areas of expertise. proposition, the Bank seeks out, welfare benefits. To this end, employees are recruits, develops and retains given challenging tasks that talented individuals that are —— A Congenial culture: compel them to ideate and passionate about making a We facilitate a work innovate new solutions whilst contribution towards the socio- environment of mutual the organisation provides economic transformation of the requisite learning Ugandans. opportunities to build their skillset. Our value proposition is Through 2019, the bank’s staff grounded on the following complement improved by 14%. As at 31st ——Supporting career key aspects: December 2019, UDB had 67 members of growth: The bank’s talent staff – 46% of whom were female. The management approach headcount is expected to continue growing as —— Compelling Organisational the bank grows in scale and scope. favours internal career Philosophy and Mandate: ascent. In this respect, the UDB occupies a unique bank sponsors various initiatives that aim to position as the country’s Our Employee Value Proposition national development build both technical and financial institution. We aspire behavioural competencies of to improve the quality of life respect and excellence, the staff whilst also providing of Ugandans, and to be the where staff are empowered opportunities for promotion model development finance and where every individual and growth within the services provider. member’s ideas count; our bank. Whenever there is an environment is designed opening within the leadership
89 2019 ANNUAL REPORT | UGANDA DEVELOPMENT BANK LTD
space, priority is given to the During 2019, staff participated in During 2019, the Bank rolled internal staff first before the various programs facilitated by out its inaugural Graduate opportunity is opened for Apprenticeship Program, external sourcing. recruiting 5 talented individuals with varied academic specialty Staff Training, Learning in business management, During the course of 2019, the bank & Development achieved an average of 8-leaner engineering, environmental days per staff, sponsored staff to and agricultural science. The attend over 30 training programs, 5 professional certifications among program takes a longer-term other interventions. view of addressing the inherent human capital risks that face our business and those the Frankfurt School of Finance associated with the sector & Management under a technical within which we operate. As assistance scheme sponsored by part of their 12-month learning the African Development Bank. journey, the apprentices will Similarly, the Bank sponsored a undertake mentor-led learning cross-section of staff to attend in various technical fields of various including the leadership the business to which they development programs – notably are attached, complimented UDB Staff at a team building retreat at the CEO Apprenticeship Program by various on-the-job Serena Hotel, Kigo. and Senior Managers’ Leadership and behavioural learning Development Program at interventions. Promised on our believe that Strathmore Business School. staff can only be most productive Employee Engagement in their roles if they are Developing a sustainable talent The Bank proactively adequately skilled, empowered feeder and supported to do their jobs, endeavours to build and the Bank devotes substantial The Bank has undertaken a maintain a unified and mission- resources towards developing in- proactive approach to building focussed team, where staff house mission-critical skills and talent for the future. In this willingly give their very best competencies. To this end, UDB respect, the facilitates structured effort. To this end, the bank continues to provide staff with student internship programs undertakes various initiatives various learning and development – from which 5 individuals to facilitate the engagement of opportunities, ranging from on- participated during the year 2019. staff – including team-building the-job learning and work-group Relatedly, the bank has over the events, celebration of individual projects, structured facilitator- years been able to hire 3 staff from milestones, employee wellness led programs, online learning, ex-interns upon the successful programs, among others. benchmarking and exposure completion of their courses and opportunities, professional upon satisfying related recruitment certification programs, among requirements. other approaches.
UDB Staff share a selfie moment during the end of year staff party. Patricia Ojangole, Managing Director UDB awarding the overall winner of the UDB Ideas Innovation contest, Susan Kiwanuka with a fully paid trip for two to Dubai.
90 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2019
Corporate information 92 Report of the directors 93 Statement of directors’ responsibilities 94 Report of the auditor general 95
Financial Statements
Statement of comprehensive income 102
Statement of financial position 103
Statement of changes in equity 104 Statement of cash flows 105-110
Notes to the financial statements 111-164
Financial Statements
91 UGANDA DEVELOPMENT BANK LIMITED CORPORATE INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2019
Registered Office Directors Secretary The directors who held office during the and Principal Ms Sophie Nakandi year and to the date of this report were: Place of Business Uganda Development Bank Name Designation Rwenzori Towers Limited Plot No. 6 Nakasero Road Mr. Felix Okoboi Chairperson Rwenzori Towers 1st Floor, Wing B3 Mr. Francis Plot No. 6 Nakasero Road P. O. Box 7210 Tumuheirwe Director 1st Floor, Wing B3 Kampala, Uganda Mr. Nimrod Waniala Director P. O. Box 7210 Mrs. Silvia Angey Ufoyuru Director Kampala, Uganda Mr. Henry Balwanyi Magino Director Mr. John Byaruhanga Director Ms. Patricia Ojangole Managing Director Bankers
dfcu Bank Limited Citibank Uganda Limited Standard Chartered Plot 2, Jinja Road Plot 4, Ternan Avenue, Nakasero Bank Uganda Limited P. O. Box 70 P. O. Box 7505 5 Speke Road Kampala, Uganda Kampala, Uganda P. O. Box 7111 Kampala, Uganda
NC Bank Uganda Limited AUDITORS DELEGATED AUDITOR 1st Floor, Rwenzori Auditor General KPMG Towers, Nakasero Government of Uganda 3rd Floor Rwenzori Courts P. O. Box 28707 P. O. Box 7083 Plot 2 &4A Nakasero Road Kampala, Uganda Kampala, Uganda P. O. Box 3509, Kampala, Ugand
Legal Advisors
J.B. Byamugisha Advocates Kateera and Kagumire Nangwala, Rezida and Co. Advocates 4 Nile Avenue P. O. Box 9400 10th Floor, Tall Tower, Crested Kampala, Uganda Towers P. O. Box 7026 Office Park Suite B5, 2nd Floor Kampala, Uganda Plot 7-9 Buganda Road P. O. Box 10304 Kampala, Uganda
Ligomarc Advocates Kalenge, Bwanika, Ssawa & BNB Advocates Co. Advocates 5th Floor,Western Wing, Social Plot 6/8 Nakasero Lane, off Kyagwe Road Security House 4 Jinja Road Plot 15A Clement Hill Road P. O. Box 12386 Kampala, Uganda P. O. Box 8230 P. O. Box 8352 Kampala, Uganda Kampala, Uganda
Tibeingana & Co. Advocates Oundo and Co Advocates 1st Floor, Eco Bank Plaza Plot 1, Pilkington Road, Plot 4, Parliament Avenue, Workers House, 7th Floor Southern Wing Suite 700 P. O. P. O. Box 72646,Kampala- Uganda Box 11070 Kampala-Uganda
92 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2019
Report of the Directors The directors submit their report together with the audited financial statements of Uganda Development Bank Limited (“the Bank”) for the year ended 31 December 2019, which disclose the state of affairs of the Bank. 1. Incorporation The Bank was incorporated under the Companies Act of Uganda, 2012 on 31 March 2000. 2. Principal Activities The principal activities of the Bank are to profitably promote and finance viable economic development in Uganda by providing finance in the form of short, medium and long term secured loans and acquiring shares in viable businesses. 3. Results The results for the year are summarized below:
2019 2018 Ushs ‘000 Ushs ‘000 Profit before tax 15,385,253 13,593,797 Income tax expense (5,244,994) (4,107,403) Profit for the year 10,140,259 9,486,394
4. Reserves management strategy is based on flows of a financial instrument a clear understanding of various will fluctuate due to changes The reserves of the Bank are set risks, disciplined risk assessment in market variables such as out on page 14. and measurement procedures interest rates, foreign exchange 5. Dividends and continuous monitoring. rates and other prices, such as equity prices. The Bank’s i. Credit Risk The directors do not recommend exposure to market risk is the payment of a dividend in Credit risk is the risk that a function of its asset and respect for the year ended 31 the Bank will incur a loss liability management activities. December 2019 (2018: Nil). because its customers or The objective of market risk counterparts fail to discharge management is to minimize 6. Directors their contractual obligations. the impact of losses due to The directors who held office Uganda Development Bank market risks on earnings and during the year and to the date Limited measures, monitors equity capital. Market risk of this report are shown on page and manages credit risk for policies include Asset-Liability 1. each borrower and also at the Management (ALM) policies. portfolio level. 7. Risk iii. Operational Risk The Bank has a standardized Operational risk can result Risk is an integral part of the credit approval process, which from a variety of factors, Banking business and Uganda includes a well-established including failure to obtain Development Bank Limited procedure of comprehensive proper internal authorizations, aims at the delivery of superior credit appraisal and rating. shareholder value by achieving improperly documented an appropriate trade-off transactions, and inadequate between risk and returns. The ii. Market Risk training and employee errors. Bank is exposed to various risks, We mitigate operational risk by Market risk is the risk that including credit risk, market risk maintaining a comprehensive the fair value or future cash and operational risk. Our risk system of internal controls,
93 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR THE YEAR ENDED 31 DECEMBER 2019
establishing systems and and Divestiture Act, Cap.98 with International Financial procedures to monitor and Sections 13 (1) (a), 17 and Reporting Standards and the transactions, maintaining 23 of the National Audit Act, Companies Act of Uganda, 2012. key back-up procedures 2008, the financial statements The Bank’s management is also and undertaking regular of the Bank are required to be responsible for such internal contingency planning. audited once every year by the controls as they determine Auditor General. Section 23 of Detailed risk management is necessary to enable the National Audit Act, 2008 permits disclosures are presented preparation of financial the Auditor General to appoint in note 5 to the financial statements that are free from private auditors to carry out such statements. material misstatement, whether audit on his/her behalf. due to fraud or error and for 8. The Aadfi Accordingly, M/S KPMG Certified maintaining adequate accounting Public Accountants were records and an effective system Prudential appointed to carry out the audit of risk management. on behalf of the Auditor General The directors have made an Standards, for the year ended 31 December assessment of the Bank’s ability 2019. Guidelines and to continue as a going concern and have no reason to believe Ratings System 10. Approval Of the business will not be a going Uganda Development Bank The Financial concern for the next twelve Limited is a member of months from the date of this the Association of African Statements statement. Development Finance Institutions The auditors are responsible (AADFI), a union of development The financial statements were for reporting on whether the banks in Africa whose main approved and authorized for financial statements give a true activities are the provision of issue at the meeting of the Board and fair view in accordance information and training in of Directors held on 11th March with the International Financial the techniques of banking and 2020. Reporting Standards (IFRS) and finance as well as development Companies Act of Uganda, 2012. policy advice to African bankers and finance officers. In 2019, the Bank participated ………………………. Approval of the in a peer review of African Company Secretary Financial Statements Development Finance Institutions based on wide ranging criteria The financial statements, as including governance standards, By order of the Board indicated above, were approved financial prudential standards The Bank’s directors are and authorized for issue by the and operational standards. The responsible for the preparation Board of Directors on 11th March Bank obtained a score of 90% and fair presentation of the 2020. (2018: 87.91%) representing a financial statements of Uganda “High” performance level (a score Development Bank Limited set of 60% is deemed to be average). out on pages 12 to 82, comprising The directors are committed to the statement of financial …………………………………… continuous improvement in the position as at 31 December 2019, Chairperson Bank’s rating. the statements of comprehensive income, changes in equity and cash flows for the year then ………………………………….. 9. Auditor ended, and the notes to the Director In accordance with Article financial statements, which 163 of the Constitution of the include a summary of significant Date: 30th March 2020 Republic of Uganda, Section 17 accounting policies and other of the Public Enterprises Reform explanatory notes, in accordance
94 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 31 DECEMBER 2019
with International Financial Reporting Standards and the Companies Act of Uganda, 2012. The Bank’s management is also responsible for such internal controls as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and for maintaining adequate accounting records and an effective system of risk management. The directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to believe the business will not be a going concern for the next twelve months from the date of this statement. The auditors are responsible for reporting on whether the financial statements give a true and fair view in accordance with the International Financial Reporting Standards (IFRS) and Companies Act of Uganda, 2012.
Approval of the Financial Statements The financial statements, as indicated above, were approved and authorized for issue by the Board of Directors on 11th March 2020.
…………………………………… Chairperson
………………………………….. Director Date: 30th March 2020
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96 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 31 DECEMBER 2019
97 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 31 DECEMBER 2019
98 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 31 DECEMBER 2019
99 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 31 DECEMBER 2019
100 UGANDA DEVELOPMENT BANK LIMITED REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 31 DECEMBER 2019
101 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE UGANDAYEAR ENDED DEVELOPMENT31 DECEMBER 2019 BANK LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019
Note 2019 2018 Ushs ‘000 Ushs ‘000
Interest and similar income 8 42,021,779 35,463,324 Interest expense and similar charges 9 (3,104,553) (2,217,024)
Net interest income 38,917,226 33,246,300 Net foreign exchange (loss)/gains 10 (73,394) 43,070 Fair value (loss)/gains on investment property 22 (3,323,000) 1,996,000 Net loss on financial assets recorded at fair value 19 (98,416) (118,173) through profit or loss Other income 11 2,062,694 3,709,724 Net impairment loss on financial instruments 20(e) (1,403,807) (7,910,558) Operating income after impairment losses 36,081,303 30,966,363 Personnel expenses 12 (11,375,982) (9,172,171) Depreciation and amortization 23, 24 (608,646) (684,385) Other operating expenses 13 (8,711,422) (7,516,010) Profit before tax 14 15,385,253 13,593,797 Income tax expense 16(a) (5,244,994) (4,107,403)
Profit for the year 10,140,259 9,486,394
Other comprehensive income Revaluation of property and equipment 23 - 1,298,234 Related tax 30 - (389,470)
Total comprehensive income net of tax 10,140,259 10,395,158 Basic/diluted earnings per share 15 101.40 94.86
The notes set out on pages 16 to 81 form an integral part of these financial statements.
12
102 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2019
UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019
Note 2019 2018 Ushs ‘000 Ushs ‘000 ASSETS Cash and cash equivalents 17 21,689,075 30,694,491 Deposits held in banks 18 81,458,271 13,688,375 Equity investments at fair value 19 127,336 225,752 Loans and advances 20 334,414,806 276,693,583 Staff loans and advances 21 3,891,810 2,392,468 Current income tax recoverable 16(b) 2,181,171 1,243,751 Investment property 22 31,473,000 34,796,000 Property and equipment 23 5,089,650 5,218,471 Intangible assets 24 823,629 273,803 Other assets 25 5,216,463 4,890,831
Total assets 486,365,211 370,117,525
EQUITY AND LIABILITIES
Capital and reserves Issued capital 32 100,000,000 100,000,000 GOU capital contributions 33 183,902,306 100,171,606 Asset revaluation reserve 34 1,203,464 1,203,464 Retained earnings 42 62,376,979 52,236,720
Total equity 347,482,749 253,611,790
Liabilities Amounts due to Bank of Uganda 26 16,017,692 9,290,181 Borrowings 27 70,541,546 57,478,060 Kuwait Special Fund 28 30,777,916 30,261,377 UNCDF Fund 29 664,670 - Deferred income tax liability 30 5,776,986 3,612,149 Other liabilities 31 15,103,652 15,863,968 138,882,462 116,505,735
Total equity and liabilities 486,365,211 370,117,525
The financial statements on pages 12 to 81 were approved and authorised for issue by the Board of Directors on……………....2011th March 20 and signed on its behalf by:
…………………………………… ……………………………… Chairperson Director
The notes set out on pages 16 to 81 form an integral part of these financial statements.
13
103 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019
14 Total 1,298,234 (389,470) Ushs'000 9,486,394 10,140,259 48,154,529 83,730,700 195,062,103 253,611,790 347,482,749
- - - - 4 earnings Retained Ushs'000 9,486,39 10,140,259 42,750,326 52,236,720 62,376,979
- - - - * Asset 294,700
1,298,234 (389,470) Reserve Ushs‘000 1,203,464 1,203,464 evaluation r
- - - - s
Ushs'000 48,154,529 83,730,700 52,017,077 100,171,606 GOU capital 183,902,306
Contribution
------Share capital Ushs'000
100,000,000 100,000,000 100,000,000
form an integral part of these financial statements. statements. financial these of part integral an form
1
8 IN EQUITY IN
to
6
1
2018
2018 contributions January 1 At equipment and of property Revaluation revaluation on tax Related year the for income comprehensive Total Contributions by equity holders GoU capital contributions Balance at 31 December year the for income comprehensive Total Contributions by equity holders GoU capital Balance at 31 December 2019
STATEMENTOF CHANGES UGANDA DEVELOPMENT BANK LIMITED The set notes on out pages FOR YEARTHEENDED 31 2019DECEMBER
104 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018 OPERATING ACTIVITIES Note Ushs '000 Ushs '000
Operating profit before changes in operating assets and liabilities 40 20,474,296 20,124,390
Changes in operating assets and liabilities
Increase in loans and advances (59,022,702) (73,641,669) Increase in other assets (325,632) (1,351,202) (Decrease)/Increase in other liabilities (760,316) 7,396,659 (Increase)/Decrease in staff loans and advances (1,499,342) 675,822 Increase in amounts due to the Kuwait Fund 516,539 921,858 Increase in amounts due to UNCDF 664,670 -
Cash used in operations (39,952,487) (45,874,142) Income tax paid (4,017,577) (3,972,234) Net cash flows used in operating activities (43,970,064) (49,846,376)
INVESTING ACTIVITIES Acquisition of property and equipment (287,702) (1,412,330) Acquisition of intangible assets (744,981) (26,721) Proceeds from sale of property and equipment - 130,084 Movement in deposits held in Banks (67,769,896) 8,835,550 Net cash flows generated from investing activities (68,802,579) 7,526,583
FINANCING ACTIVITIES Proceeds of amounts due to Bank of Uganda 9,791,072 1,961,605 Repayments of amounts due to Bank of Uganda (3,063,561) (5,726,842) Proceeds from borrowings 38,807,670 35,970,862 Repayment of borrowings (25,425,260) (14,622,944) Contributions from the Government of Uganda 83,730,700 48,154,529
Net cash flows generated from financing activities 103,840,621 65,737,210
(Decrease)/Increase in cash and cash equivalents (8,932,022) 23,417,417 Net foreign exchange difference (73,394) 43,070 7,234,004 Cash and cash equivalents at 1 January 30,694,491 Cash and cash equivalents at 31 December 17 21,689,075 30,694,491
The notes set out pages 16 to 81 form an integral part of these financial statements.
15
105 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
following material items in the interpretations and sets out the 1. Reporting Entity statement of financial position principles for the recognition, that are measured at fair value: measurement, presentation and Uganda Development Bank disclosure of leases for both Limited (the “Bank”) is a company • Equity investments at fair parties to a contract, being the domiciled in Uganda. The address value through profit or lessee (customer) and the lessor of the Bank’s registered office is: loss (supplier). The core principle of this standard is that the lessee Uganda Development Bank • Investment property and lessor should recognise all Limited Rwenzori Towers • Freehold land and rights and obligations arising Plot No. 6 Nakasero Road buildings from leasing arrangements on 1st Floor, Wing B the balance sheet. The most P. O. Box 7210 c. Functional and significant change pertaining Kampala, Uganda presentation currency to the accounting treatment The financial statements are of operating leases is from the The Bank is primarily involved in presented in Uganda Shillings lessees’ perspective. development financing. (Ushs), which is the Bank’s The Bank initially applied IFRS 16 functional currency. All financial Leases from 1 January 2019. The information presented in Uganda Bank applied IFRS 16 using the 2. Basis Of shillings has been rounded to modified retrospective approach, Preparation the nearest thousand (Ushs‘000) under which the cumulative effect except where otherwise indicated. of initial application is recognised a. Basis of accounting and 3. Changes In in retained earnings at 1 January statement of compliance 2019. Accordingly, the comparative Significant information presented for 2018 is The financial statements have not restated – i.e. it is presented, been prepared in accordance Accounting as previously reported, under IAS with International Financial Policies And 17 and related interpretations. Reporting Standards (IFRS), The details of the changes in as issued by the International Disclosure accounting policies are disclosed Accounting Standards Board below. Additionally, the disclosure (IASB), and the requirements of New standards, amendments requirements in IFRS 16 have the Companies Act of Uganda, and interpretations effective not generally been applied to 2012. and adopted during the year comparative information. ended 31 December 2019 For purposes of reporting under the Companies Act of During the current year, the Definition of a lease Uganda, 2012 the balance sheet Bank has adopted all of the in these financial statements new and revised standards At inception of a contract, the is represented by the statement and interpretations issued by Bank assesses whether a contract of financial position and the the IASB and the IFRIC that are is, or contains, a lease. A contract profit and loss account is relevant to its operations and is, or contains, a lease if the represented by the statement of effective for annual reporting contract conveys the right to comprehensive income. periods beginning on 1 January control the use of an identified 2019. The adoption of these asset for a period of time in Changes to significant accounting new and revised standards and exchange for consideration. To policies are described in Note 3 interpretations had no significant assess whether a contract conveys of the financial statements. material impact on the financial the right to control the use of an statements. identified asset, the Company uses b. Basis of preparation the definition of a lease in IFRS 16. IFRS 16: Leases The financial statements have This policy is applied to contracts been prepared on the historical This standard replaces IAS 17 entered into, on or after 1 January cost basis except for the Leases as well as the related 2019.
106 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
On transition to IFRS 16, the Bank property leases as operating — excluded initial direct costs elected to apply the practical leases under IAS 17. On transition, from the measurement of the expedient to grandfather the for these leases, lease liabilities right-of-use asset at the date assessment of which transactions were measured at the present of initial application; and are leases. The Bank applied value of the remaining lease IFRS 16 only to contracts that payments, discounted at the — used hindsight when were previously identified as Bank’s incremental borrowing determining the lease term. leases. Contracts that were not rate as at 1 January 2019. On transition to IFRS 16, the Bank identified as leases under IAS 17 has not recognised right‑of‑use were not reassessed for whether Right-of-use assets are measured assets, and additional lease there is a lease under IFRS 16. at either: liabilities as at 1 January 2019 Therefore, the definition of a due to the above practical lease under IFRS 16 was applied — their carrying amount as if expedients. only to contracts entered into IFRS 16 had been applied *For the impact of IFRS 16 on or changed on or after 1 January since the commencement profit or loss for the period, 2019. date, discounted using the see note q. For the details of Bank’s incremental borrowing accounting policies under IFRS 16 rate at the date of initial As a lessee and IAS 17, see note q. application: the Bank applied As a lessee, the Bank leases this approach to its leases; or When measuring lease liabilities property. The Bank previously for leases that were classified classified leases as operating — an amount equal to the lease as operating leases, the Bank or finance leases based on its liability, adjusted by the discounted lease payments using assessment of whether the lease amount of any prepaid or its incremental borrowing rate transferred significantly all of accrued lease payments: the at 1 January 2019. The weighted‑ the risks and rewards incidental Bank applied this approach average rate applied is 0%. to ownership of the underlying to all other leases. asset to the Bank. Under IFRS 16, The Bank has tested its right- the Bank recognises right‑of‑use of-use assets for impairment assets and lease liabilities for on the date of transition and most of these leases – i.e. these has concluded that there is no leases are on‑balance sheet. indication that the right-of-use At commencement or on assets are impaired. modification of a contract that contains a lease component, the The Bank used a number of Bank allocates the consideration practical expedients when in the contract to each lease applying IFRS 16 to leases component on the basis of its previously classified as operating relative stand‑alone price. leases under IAS 17. In particular, However, for leases of property the Bank: the Bank has elected not to separate non‑lease components — did not recognise right-of- and account for the lease use assets and liabilities and associated non‑lease for leases for which the components as a single lease lease term ends within 12 component. months of the date of initial application;
— did not recognise right-of- Leases classified as operating use assets and liabilities for leases under IAS 17 leases of low value assets Previously, the Bank classified (e.g. IT equipment);
107 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
1 January 2019 Ushs ‘000’ Operating lease commitments at 31 December 2018 as disclosed under IAS 17 in the Bank’s financial statements 876,195
Discounted using the incremental borrowing rate at 1 January 2019 - Recognition exemption for leases of low-value assets - Recognition exemption for leases with less than 12 months of lease term at transition (876,195) Lease liabilities recognised at 1 January 2019 -
IFRIC 23 Uncertainty over IFRS 9 Financial Instruments Income Tax Treatments (amendment) (Effective for 4. Significant (Effective for annual periods periods beginning 1 January Accounting beginning on 1 January 2019 2019 with earlier application with earlier application permitted) Policies permitted) The amendment allows financial The following are the principal This Interpretation clarifies how assets with prepayment features accounting policies used in to apply the recognition and that permit or require a party to preparation of these financial measurement requirements in a contract either to pay or receive statements. The policies have IAS 12 when there is uncertainty reasonable compensation for the been applied consistently to all over income tax treatments. early termination of the contract periods presented and are set In such a circumstance, an (so that, from the perspective of out below. entity shall recognise and the holder of the asset there may measure its current or deferred be ‘negative compensation’), to tax asset or liability applying be measured at amortised cost a. Foreign currency the requirements in IAS 1 2 or at fair value through other translation comprehensive income. The based on taxable profit (tax The financial statements are amendment is required to be loss), tax bases, unused tax presented in Uganda shillings applied retrospectively. losses, unused tax credits (Ushs), which is also the and tax rates determined by The amendment has not had an functional currency of the entity. applying this interpretation. impact on the Bank’s financial Transactions in foreign currencies This interpretation addresses: statements. are initially recorded in the whether an entity considers functional currency at the spot uncertain tax treatments Annual improvements to IFRS exchange rates ruling at the date separately; the assumptions standards 2015-2017 cycle – of the transactions. an entity makes about the various standards examination of tax treatments Monetary assets and liabilities by taxation authorities; how an The IASB has issued various denominated in foreign entity determines taxable profit amendments and clarifications currencies are retranslated into (tax loss), tax bases, unused tax to existing IFRS, none of which the functional currency at the losses, unused tax credits and is expected to have a significant spot rate of exchange at the tax rates; and how an entity impact on the Bank’s annual reporting date. financial statements. considers changes in facts and All translation gains and losses circumstances. The IFRIC will be arising on non-trading activities applied retrospectively. are recognised in profit or loss. The amendment has not had an Non–monetary items that are impact on the Bank’s financial measured in terms of historical statements.
108 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
cost in a foreign currency are impairment loss. with related direct costs) and translated using the exchange recognised as an adjustment to Interest income and expense rates as at the dates of the initial the effective interest rate on the presented in profit or loss recognition. loan. The exception is, when it is include: unlikely that a loan will be drawn Non-monetary items measured down, the loan commitment fees at fair value in a foreign currency • interest on financial are recognised as revenue on are translated using the exchange assets and financial expiry. rates at the date when the fair liabilities measured at value is determined. The gain amortised cost calculated Other fees and commission or loss arising on translation of on an effective interest expense relate mainly to non-monetary items measured at basis; and transaction and services fee, fair value is treated in line with • Interest on available-for- which are expensed as the the recognition of the gain or loss sale investment securities services are received. on the change in fair value of the calculated on an effective iii. Other income item (i.e., translation differences interest basis. on items whose fair value gain or Other income includes gains less Interest income and expense on loss is recognised in OCI or profit losses related to trading assets all trading assets and liabilities or loss are also recognised in OCI and liabilities and includes all are considered to be incidental or profit or loss, respectively). realised and unrealised fair value to the Bank’s trading operations changes, interest and foreign and are presented together with b. Revenue recognition exchange differences. all other changes in the fair value i. Interest income and of trading assets and liabilities in iv. Dividend income expense net trading income. Dividend income is recognised For all financial instruments Fair value changes on other when the right to receive measured at amortised cost, derivatives held for risk payment is established. Usually interest income or expense is management purposes, and this is the ex-dividend date for recorded using the effective other financial assets and equity securities. Dividends are interest rate (EIR). The EIR is the financial liabilities carried at fair presented in other income. rate that exactly discounts the value through profit or loss, are estimated future cash receipts presented in net income from v. Rental income over the expected life of the other financial instruments at Rental income is recognised on a financial instrument or a shorter fair value through profit or loss in straight-line basis over the term period, where appropriate, to the statement of comprehensive of the relevant lease. Initial direct the net carrying amount of the income. financial asset. Interest income costs incurred in negotiating is included in profit or loss. The ii. Fees and commission and arranging a lease are added calculation takes into account all income to the carrying amount of the leased asset and recognised on a of the contractual terms of the Fees and commission income and financial instrument and includes straight-line basis over the lease expense that are integral to the term. any fees or incremental costs effective interest on a financial that are directly attributable asset or liability are included in c. Income tax expense to the instrument and are an the measurement of the effective integral part of the EIR, but not interest rate. Income tax expense comprises future credit losses. When the current income tax and deferred recorded value of a financial asset Other fees and commission income tax. Current income tax or a group of similar financial income including account and deferred income tax are assets has been reduced by an servicing fees and syndication recognised in profit or loss except impairment loss, interest income fees are recognised as the related to the extent that it relates to continues to be recognised services are performed. items recognised directly in using the rate of interest used to Loan commitment fees for equity or in other comprehensive discount the future cash flows loans that are likely to be drawn income. for the purpose of measuring the down are deferred (together
109 UGANDA DEVELOPMENT BANK LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
i. Current income tax it is probable that the the extent that it is no longer temporary differences probable that sufficient taxable Current tax assets and liabilities will not reverse in the profit will be available to allow for the current and prior years foreseeable future. all or part of the deferred tax are measured at the amount asset to be utilised. Unrecognised expected to be recovered from, or Deferred tax assets are deferred tax assets are paid to, the taxation authorities. recognised for all deductible reassessed at each reporting date The tax rates and tax laws used temporary differences, carry and are recognised to the extent to compute the amount are those forward of unused tax credits and that it has become probable that that are enacted, or substantively unused tax losses, to the extent future taxable profit will allow enacted, by the reporting date. that it is probable that taxable the deferred tax asset to be Current income tax relating to profit will be available against recovered. items recognised directly in which the deductible temporary equity is recognised in equity and Deferred tax assets and liabilities differences, and the carry forward not in the statement of profit or are measured at the tax rates of unused tax credits and unused loss. Management periodically that are expected to apply in the tax losses can be utilised except: evaluates positions taken in year when the asset is realised or the tax returns with respect to the liability is settled, based on • Where the deferred tax situations in which applicable tax rates (and tax laws) that have asset relating to the tax regulations are subject to been enacted or substantively deductible temporary interpretation and establishes enacted at the reporting date. difference arises from provisions where appropriate. the initial recognition of Current tax and deferred tax ii. Deferred income tax an asset or liability in a relating to items recognised transaction that is not directly in other comprehensive Deferred tax is provided on a business combination income or equity are temporary differences between and, at the time of the also recognised in other the tax bases of assets and transaction, affects comprehensive income or equity liabilities and their carrying neither the accounting and not in profit or loss. amounts for financial reporting profit nor taxable profit or Deferred tax assets and deferred purposes at the reporting loss; and date. Deferred tax liabilities tax liabilities are offset if a are recognised for all taxable • In respect of legally enforceable right exists to temporary differences, except: deductible temporary set off current tax assets against differences associated current tax liabilities and the • Where the deferred tax with investments in deferred taxes relate to the same liability arises from the subsidiaries, deferred taxable entity and the same initial recognition of tax assets are recognised taxation authority. goodwill or of an asset or only to the extent that liability in a transaction it is probable that the that is not a business temporary differences will d. Financial assets and combination and, at the reverse in the foreseeable financial liabilities time of the transaction, future and taxable profit i. Recognition and initial affects neither the will be available against measurement accounting profit nor which the temporary taxable profit or loss; and differences can be The Bank initially recognises utilised. loans and advances, deposits, • In respect of taxable debt securities issued and temporary differences subordinated liabilities on associated with c. Income tax expense the date on which they are investments in (Continued) originated. All other financial subsidiaries, where the instruments (including regular- timing of the reversal of The carrying amount of deferred way purchases and sales of the temporary differences tax assets is reviewed at each financial assets) are recognised can be controlled and reporting date and reduced to
110 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
on the trade date, which is the This election is made on an model (and the financial date on which the Bank becomes investment-by-investment basis. assets held within that a party to the contractual business model) and its provisions of the instrument. All other financial strategy for how those risks are managed; A financial asset or financial assets are classified liability is measured initially at as measured at — how managers of the fair value plus, for an item not FVTPL. business are compensated at FVTPL, transaction costs that (e.g. whether compensation are directly attributable to its In addition, on initial recognition, is based on the fair value acquisition or issue. the Bank may irrevocably of the assets managed or designate a financial asset the contractual cash flows ii. Classification that otherwise meets the collected); and requirements to be measured On initial recognition, a financial at amortised cost or at FVOCI as — the frequency, volume and asset is classified as measured at: at FVTPL if doing so eliminates timing of sales in prior amortised cost, FVOCI or FVTPL. or significantly reduces an periods, the reasons for such A financial asset is measured at accounting mismatch that would sales and its expectations amortised cost if it meets both of otherwise arise. about future sales activity. the following conditions and is However, information not designated as at FVTPL: iii. Business model about sales activity is not considered in isolation, — the asset is held within assessment but as part of an overall a business model whose The Bank makes an assessment assessment of how the objective is to hold assets of the objective of a business Bank’s stated objective for to collect Contractual cash model in which an asset is held managing the financial assets flows; and at a portfolio level because this is achieved and how cash best reflects the way the business — The contractual terms of the flows are realised. is managed and information is financial asset give rise on provided to management. The — Financial assets that are specified dates to cash flows information considered includes: held for trading or managed that are Solely Payments of and whose performance is Principal and Interest (SPPI). — The stated policies and evaluated on a fair value — A debt instrument is objectives for the portfolio basis are measured at FVTPL measured at FVOCI only if it and the operation of because they are neither meets both of the following those policies in practice. held to collect contractual conditions and is not In particular, whether cash flows nor held both to designated as at FVTPL: management’s strategy collect contractual cash flows focuses on earning — the asset is held within and to sell financial assets. contractual interest revenue, a business model whose maintaining a particular objective is achieved by both interest rate profile, matching 4. Significant collecting contractual cash the duration of the financial flows and selling financial Accounting assets to the duration of the assets; and liabilities that are funding Policies — the contractual terms of the those assets or realising cash financial asset give rise on flows through the sale of the (continued) specified dates to cash flows assets; that are SPPI. d. Financial assets and — how the performance of financial liabilities On initial recognition of an equity the portfolio is evaluated investment that is not held for and reported to the Bank’s iv. Assessment of whether trading, the Bank may irrevocably management; contractual cash flows elect to present subsequent — the risks that affect the are solely payments of changes in fair value in OCI. performance of the business principal and interest
111 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
For the purposes of this an option to either accept the the borrower’s assets; and assessment, ‘principal’ is revised rate or redeem the loan whether the Bank will benefit defined as the fair value of at par without penalty. The from any upside from the the financial asset on initial Bank has determined that the underlying assets. recognition. ‘Interest’ is defined contractual cash flows of these vi. Reclassifications as consideration for the time loans are SPPI because the value of money and for the credit option varies the interest rate in Financial assets are not risk associated with the principal a way that is consideration for reclassified subsequent to their amount outstanding during a the time value of money, credit initial recognition, except in the particular period of time and risk, other basic lending risks period after the Bank changes for other basic lending risks and costs associated with the its business model for managing and costs (e.g. liquidity risk and principal amount outstanding. financial assets administrative costs), as well as profit margin. v. Non-recourse loans vii. Derecognition In some cases, loans made by In assessing whether the Policy on derecognition contractual cash flows are the Bank that are secured by SPPI, the Bank considers collateral of the borrower limit a. Financial assets the contractual terms of the the Company’s claim to cash The Bank derecognises a financial instrument. This includes flows of the underlying collateral asset when the contractual assessing whether the financial (non-recourse loans). The Bank rights to the cash flows from asset contains a contractual term applies judgment in assessing the financial asset expire or it that could change the timing whether the non-recourse loans transfers the rights to receive or amount of contractual cash meet the SPPI criterion. The Bank the contractual cash flows in a flows such that it would not meet typically considers the following transaction in which substantially this condition. In making the information when making this all of the risks and rewards of assessment, the Bank considers; judgement: ownership of the financial asset — contingent events that would — whether the contractual are transferred or in which the change the amount and arrangement specifically Bank neither transfers nor retains timing of cash flows; defines the amounts and substantially all of the risks and dates of the cash payments rewards of ownership and it does — leverage features; of the loan; not retain control of the financial — prepayment and extension asset. — the fair value of the collateral terms; relative to the amount of the On derecognition of a financial — terms that limit the Bank’s secured financial asset; asset, the difference between the claim to cash flows from carrying amount of the asset (or specified assets (e.g. non- — the ability and willingness the carrying amount allocated recourse loans); and of the borrower to make to the portion of the asset contractual payments, derecognised) and the sum of; — Features that modify notwithstanding a decline in consideration of the the value of collateral; i. the consideration received time value of money (e.g. (including any new asset periodical reset of interest — whether the borrower is an obtained less any new rates). individual or a substantive liability assumed) and; operating entity or is a The Bank holds a portfolio of special-purpose entity; ii. any cumulative gain or loss long-term fixed-rate loans for that had been recognised in OCI is recognised in which the Bank has the option — The Bank’s risk of loss profit or loss. to propose to revise the interest on the asset relative rate at periodic reset dates. to a full-recourse loan; In transactions in which the Bank These reset rights are limited the extent to which the neither retains nor transfers to the market rate at the time collateral represents all substantially all of the risks of revision. The borrowers have or a substantial portion of and rewards of ownership of
112 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
a financial asset and it retains evaluates whether the cash asset measured at amortised control over the asset, the Bank flows of the modified asset are cost or FVOCI does not result in continues to recognise the asset substantially different. derecognition of the financial to the extent of its continuing asset, then the Bank first If the cash flows are substantially involvement, determined by the recalculates the gross carrying different, then the contractual extent to which it is exposed amount of the financial asset rights to cash flows from the to changes in the value of the using the original effective original financial asset are transferred asset. interest rate of the asset deemed to have expired. and recognises the resulting In certain transactions, the Bank In this case, the original adjustment as a modification retains the obligation to service financial asset is derecognised gain or loss in profit or loss. For the transferred financial asset and a new financial asset is floating-rate financial assets, for a fee. The transferred asset recognised at fair value plus the original effective interest is derecognised if it meets the any eligible transaction costs. rate used to calculate the derecognition criteria. An asset Any fees received as part of the modification gain or loss is or liability is recognised for the modification are accounted for as adjusted to reflect current servicing contract if the servicing follows: market terms at the time of the fee is more than adequate (asset) modification. Any costs or fees or is less than adequate (liability) — fees that are considered in incurred and fees received as for performing the servicing. determining the fair value of the new asset and fees that part of the modification adjust The Bank securitises various represent reimbursement the gross carrying amount of the loans and advances to customers of eligible transaction costs modified financial asset and are and investment securities, which are included in the initial amortised over the remaining generally result in the sale of measurement of the asset; term of the modified financial these assets to unconsolidated and asset. securitisation vehicles and in the If such a modification is carried Bank transferring substantially — other fees are included in out because of financial all of the risks and rewards of profit or loss as part of the difficulties of the borrower, then ownership. The securitisation gain or loss on derecognition. the gain or loss is presented vehicles in turn issue securities together with impairment losses. to investors. Interests in the In other cases, it is presented securitised financial assets are If cash flows are modified when as interest income calculated generally retained in the form of the borrower is in financial using the effective interest rate senior or subordinated tranches, difficulties, then the objective method. or other residual interests of the modification is usually to (retained interests). Retained maximise recovery of the original interests are recognised as contractual terms rather than b. Financial liabilities investment securities. to originate a new asset with substantially different terms. The Bank derecognises a b. Financial liabilities If the Bank plans to modify a financial liability when its terms financial asset in a way that are modified and the cash flows The Bank derecognises a financial would result in forgiveness of of the modified liability are liability when its contractual cash flows, then it first considers substantially different. In this obligations are discharged or whether a portion of the asset case, a new financial liability cancelled, or expire. should be written off before the based on the modified terms modification takes place (see is recognised at fair value. The Viii. Modifications of financial below for write‑off policy). This difference between the carrying assets and financial approach impacts the result of amount of the financial liability liabilities. the quantitative evaluation and derecognised and consideration means that the derecognition paid is recognised in profit or a. Financial assets criteria are not usually met in loss. Consideration paid includes such cases. non-financial assets transferred, If the terms of a financial asset if any, and the assumption of are modified, then the Bank If the modification of a financial
113 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
liabilities, including the new between market participants at Subsequently, that difference is modified financial liability. the measurement date in the recognised in profit or loss on an principal or, in its absence, the appropriate basis over the life If the modification of a financial most advantageous market to of the instrument but no later liability is not accounted for which the Bank has access at that than when the valuation is wholly as derecognition, then the date. The fair value of a liability supported by observable market amortised cost of the liability reflects its non-performance risk. data or the transaction is closed is recalculated by discounting out. the modified cash flows at When one is available, the Bank the original effective interest measures the fair value of an If an asset or a liability measured rate and the resulting gain or instrument using the quoted at fair value has a bid price loss is recognised in profit or price in an active market for that and an ask price, then the loss. For floating-rate financial instrument. A market is regarded Bank measures assets and long liabilities, the original effective as ‘active’ if transactions for the positions at a bid price and interest rate used to calculate asset or liability take place with liabilities and short positions at the modification gain or loss sufficient frequency and volume an ask price. is adjusted to reflect current to provide pricing information on Portfolios of financial assets market terms at the time of an ongoing basis. and financial liabilities that the modification. Any costs and If there is no quoted price in an are exposed to market risk and fees incurred are recognised as active market, then the Bank credit risk that are managed an adjustment to the carrying uses valuation techniques that by the Bank on the basis of the amount of the liability and maximise the use of relevant net exposure to either market amortised over the remaining observable inputs and minimise or credit risk are measured term of the modified financial the use of unobservable inputs. on the basis of a price that liability by re-computing the The chosen valuation technique would be received to sell a effective interest rate on the incorporates all of the factors net long position (or paid to instrument. that market participants would transfer a net short position) iX. Offsetting take into account in pricing a for the particular risk exposure. transaction. Portfolio-level adjustments – e.g. Financial assets and financial bid-ask adjustment or credit The best evidence of the fair liabilities are offset and the risk adjustments that reflect the value of a financial instrument net amount presented in the measurement on the basis of on initial recognition is normally statement of financial position the net exposure – are allocated the transaction price – i.e. the when, and only when, the to the individual assets and fair value of the consideration Bank currently has a legally liabilities on the basis of the given or received. If the Bank enforceable right to set off the relative risk adjustment of each determines that the fair value amounts and it intends either to of the individual instruments in on initial recognition differs settle them on a net basis or to the portfolio. realise the asset and settle the from the transaction price and liability simultaneously. the fair value is evidenced The fair value of a financial neither by a quoted price in an liability with a demand feature Income and expenses are active market for an identical (e.g. a demand deposit) is not presented on a net basis only asset or liability nor based on less than the amount payable when permitted under IFRS, a valuation technique for which on demand, discounted from the or for gains and losses arising any unobservable inputs are first date on which the amount from a Company of similar judged to be insignificant in could be required to be paid. transactions such as in the Bank’s relation to the measurement, The Bank recognises transfers trading activity. then the financial instrument is between levels of the fair value initially measured at fair value, X. Fair value measurement hierarchy as of the end of the adjusted to defer the difference reporting period during which ‘Fair value’ is the price that between the fair value on initial the change has occurred. would be received to sell an recognition and the transaction asset or paid to transfer a price. liability in an orderly transaction
114 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Xi. Impairment events over the expected life If the terms of a financial asset of the financial instrument. are renegotiated or modified a. Policy applicable Financial instruments for which or an existing financial asset is The Bank recognises loss a lifetime ECL is recognised but replaced with a new one due allowances for ECL on the which are not Credit-impaired are to financial difficulties of the following financial instruments: referred to as ‘Stage 2 financial borrower, then an assessment is instruments’. made of whether the financial — financial assets that are debt asset should be derecognised instruments; and ECL are measured as follows. b. Measurement of ECL — If the expected restructuring — loan commitments issued; ECL are a probability-weighted will not result in and estimate of credit losses. They are derecognition of the existing measured as follows: No impairment loss is recognised asset, then the expected on equity investments. — financial assets that are cash flows arising from the not credit-impaired at the modified financial asset The Bank measures loss reporting date: as the present are included in calculating allowances at an amount equal value of all cash shortfalls the cash shortfalls from the to lifetime ECL, except for the (i.e. the difference between existing asset. following, for which they are the cash flows due to the — If the expected restructuring measured as 12-month ECL: entity in accordance with the will result in derecognition contract and the cash flows of the existing asset, then — debt investment securities that the Bank expects to the expected fair value of that are determined to receive); have low credit risk at the the new asset is treated as reporting date; and — financial assets that are the final cash flow from the credit-impaired at the existing financial asset at — other financial instruments reporting date: as the the time of its derecognition. (other than lease receivables) difference between the gross This amount is included in on which credit risk has not carrying amount and the calculating the cash shortfalls increased significantly since present value of estimated from the existing financial their initial recognition. future cash flows; asset that are discounted The Bank considers a debt from the expected date investment security to have — undrawn loan commitments: of derecognition to the low credit risk when its credit as the present value of the reporting date using the risk rating is equivalent to the difference between the original effective interest rate globally understood definition contractual of the existing financial asset. of ‘investment grade’. The Bank does not apply the low credit — cash flows that are due to d. Credit-impaired financial risk exemption to any other the Bank if the commitment assets financial instruments. 12-month is drawn down and the cash ECL are the portion of ECL that flows that the Bank expects At each reporting date, the result from default events on to receive; and Bank assesses whether financial a financial instrument that are assets carried at amortised cost — financial guarantee contracts: possible within the 12 months are credit‑impaired (referred to the expected payments to after the reporting date. Financial as ‘Stage 3 financial assets’). A reimburse the holder less instruments for which a 12-month financial asset is ‘credit‑impaired’ any amounts that the Bank ECL is recognised are referred to when one or more events that expects to recover. as ‘Stage 1 financial instruments’. have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Life-time ECL are the ECL that c. Restructured financial result from all possible default assets Evidence that a financial asset
115 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
is credit-impaired includes the — Undrawn commitments and g. Non-integral financial following observable data: letters of credit: generally, as guarantee contracts a provision; See Note 31 — significant financial difficulty The Bank assesses whether a of the borrower or issuer; — where a financial instrument financial guarantee contract includes both a drawn and held is an integral element of a — a breach of contract such as a an undrawn component, financial asset that is accounted default or past due event; and the Bank cannot for as a component of that identify the ECL on the loan instrument or is a contract that — the restructuring of a loan commitment component is accounted for separately. The or advance by the Bank on separately from those on factors that the Bank considers terms that the Bank would the drawn component: The when making this assessment not consider otherwise; Bank presents a combined include whether: loss allowance for both — the guarantee is implicitly — it is becoming probable components. The combined part of the contractual terms that the borrower will enter amount is presented as a of the debt instrument; bankruptcy or other financial deduction from the gross reorganisation; or carrying amount of the drawn — the guarantee is required by component. Any excess of — the disappearance of an laws and regulations that the loss allowance over the active market for a security govern the contract of the gross amount of the drawn because of financial debt instrument; component is presented as a difficulties. provision. — the guarantee is entered into at the same time as and in A loan that has been renegotiated contemplation of the debt due to a deterioration in the f. Write-off instrument; and borrower’s condition is usually Loans and debt securities are considered to be credit-impaired written off (either partially or in — the guarantee is given by the unless there is evidence that the full) when there is no reasonable parent of the borrower or risk of not receiving contractual expectation of recovering a another company within the cash flows has reduced financial asset in its entirety borrower’s Company. significantly and there are no or a portion thereof. This is other indicators of impairment. generally the case when the Bank In addition, a retail loan that is If the Bank determines that the determines that the borrower overdue for 90 days or more is guarantee is an integral element does not have assets or sources considered credit-impaired even of the financial asset, then any of income that could generate when the regulatory definition of premium payable in connection sufficient cash flows to repay the default is different. with the initial recognition of amounts subject to the write-off. the financial asset is treated as a This assessment is carried out at e. Presentation of allowance transaction cost of acquiring it. the individual asset level. for ECL in the statement of The Bank considers the effect of financial position Recoveries of amounts previously the protection when measuring written off are reported under the fair value of the debt Loss allowances for ECL are other income in the statement of instrument and when measuring presented in the statement of profit or loss and OCI. ECL. financial position as follows: Financial assets that are written If the Bank determines that the — financial assets measured off could still be subject to guarantee is not an integral at amortised cost: as a enforcement activities in order element of the debt instrument, deduction from the gross to comply with the Bank’s then it recognises an asset carrying amount of the procedures for recovery of representing any prepayment of assets; amounts due. guarantee premium and a right to compensation for credit losses.
116 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
A prepaid premium asset is Loans and advances to customers revaluation less any subsequent recognised only if the guaranteed and staff are classified under accumulated depreciation exposure neither is credit- amortised cost in accordance and subsequent accumulated impaired nor has undergone a with IFRS 9. impairment losses. Revaluations significant increase in credit risk are made after every 3 years to Loans and advances are initially when the guarantee is acquired. ensure that the carrying amount measured at fair value plus does not differ materially from incremental direct transaction that which would be determined costs, and subsequently Designation at fair value using fair value at the end of the measured at their amortised through profit or loss reporting period. cost using the effective interest Financial assets method. When the Bank chooses Any accumulated depreciation to designate the loans and at the date of revaluation is At initial recognition, the Bank advances as measured at fair eliminated against the gross has designated certain financial value through profit or loss, they carrying amount of the asset and assets as at FVTPL because are measured at fair value with the net amount is restated to the this designation eliminates face value changes recognised revalued amount of the asset. or significantly reduces an immediately in profit or loss. accounting mismatch, which A revaluation surplus is recorded would otherwise arise. in OCI and credited to the asset revaluation surplus in equity. j. Investment securities The Bank accounting policies However, to the extent that it on the classification of financial The ‘investment securities’ reverses a revaluation deficit instruments under IFRS 9 are set caption in the statement of of the same asset previously out in Note 4 (d) financial position includes: debt recognised in profit or loss, the and equity investment securities increase is recognised in profit mandatorily measured at FVTPL and loss. A revaluation deficit h. Cash and cash equivalents or designated as at FVTPL; these is recognised in profit or loss, Cash and cash equivalents are at fair value with changes except to the extent that it include notes and cash on recognised immediately in profit offsets an existing surplus on hand, deposits held at call with or loss; the same asset recognised in the banks and highly liquid financial asset revaluation surplus. The assets with original maturities revaluation surplus is transferred of three months or less from the k. Property and equipment to retained earnings upon acquisition date that are subject derecognition of the asset to i. Recognition and which it relates. to an insignificant risk of changes measurement in their fair value, and are used by the Bank in the management Property and equipment are of its short-term commitments. stated at cost or revalued ii. Subsequent costs amount, less accumulated Cash and cash equivalents are Subsequent expenditure on depreciation and accumulated an asset is capitalised only carried at amortised cost in the impairment losses. Costs include statement of financial position. when it is probable that the expenditure that is directly future economic benefits of the attributable to the acquisition expenditure will flow to the Bank of the asset. Purchased i. Loans and advances and the expenditure improves software that is integral to the the condition of the asset beyond Loans and advances are non- functionality of the related its previously assessed standard derivative financial assets with equipment is capitalised as part of performance. Ongoing repairs fixed or determinable payments of that equipment. and maintenance are expensed that are not quoted in an active After recognition as an asset, as incurred. market and that the Bank does land and buildings are carried not intend to sell immediately or at their revalued amounts, being iii. Depreciation in the near term. the fair value at the date of the Items of property and equipment
117 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
are depreciated from the date v. Derecognition investment property only when they are available for use or, there is a change in use. For a An item of property or equipment in respect of self-constructed transfer from investment property is derecognized upon disposal assets, from the date that to owner-occupied property, the or when no future economic the assets are completed and deemed cost for subsequent benefits are expected from its ready for use. Depreciation is accounting is the fair value at the use or disposal. Any gain or loss recognised in profit or loss on date of change in use. If owner- arising on derecognition of the a straight line basis over the occupied property becomes an asset (calculated as the difference estimated useful life of each investment property, the Bank between the net disposal part of an item of property accounts for such property proceeds and the carrying and equipment. The rates of in accordance with the policy amount of the asset) is included depreciation used are based on stated under property, plant in profit or loss in the year the the following estimated useful and equipment up to the date of asset is derecognized. lives: change in use.
Buildings L. Investment property 50 years M. Intangible assets Investment properties are Motor vehicles Software acquired by the 5 years measured initially at cost, Bank is measured at cost less Fixtures, fittings and equipment including transaction costs. accumulated amortisation and 8 years Subsequent to initial recognition, any accumulated impairment Computers investment properties are 4 years losses. stated at fair value, which reflects market conditions at the Expenditure on internally Depreciation methods, useful reporting date. Gains or losses developed software is lives and residual values are arising from changes in the fair recognised as an asset when reviewed at each reporting date values of investment properties the Bank is able to demonstrate and adjusted if appropriate. are included in profit or loss in its intention and ability to the period in which they arise, complete the development and including the corresponding use the software in a manner iv. Impairment tax effect. Fair values are that will generate future The Bank assesses at each determined based on an annual economic benefits, and can reporting date whether there valuation performed by an reliably measure the costs to is any indication that any item accredited external independent complete the development. The of property and equipment is valuer applying a valuation capitalised costs of internally impaired. If any such indication model recommended by the developed software include all exists, the Bank estimates the International Valuation Standards costs directly attributable to recoverable amount of the Committee. developing the software and relevant asset. An impairment capitalised borrowing costs, and are amortised over its useful life. loss is recognised for the amount Investment properties are Internally developed software by which the asset’s carrying derecognised either when they is stated at capitalised cost less amount exceeds its recoverable have been disposed of or when accumulated amortisation and amount. The recoverable amount they are permanently withdrawn impairment. is the higher of an asset’s fair from use and no future economic value less costs of disposal and benefit is expected from their Subsequent expenditure on value in use. For the purposes disposal. The difference between software assets is capitalised of assessing impairment, assets the net disposal proceeds and only when it increases the future are grouped at the lowest levels the carrying amount of the asset economic benefits embodied for which there are separately is recognised in profit or loss in in the specific asset to which it identifiable cash flows. the period of derecognition. relates. All other expenditure is expensed as incurred. Transfers are made to (or from)
118 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Software is amortised on a is classified as “share premium” the obligation can be estimated straight line basis in profit or loss in equity. Contributions received reliably. over its estimated useful life, from the Government of Uganda from the date that it is available and for which no shares have iii. Termination benefits for use. The core-banking system been allotted are classified as Termination benefits are acquired in the prior year has a Government of Uganda capital recognised as an expense useful life of five years. contributions pending allotment when the Bank is committed of shares. The intangible assets are demonstrably, without realistic assessed for impairment possibility of withdrawal, to a whenever there is an indication formal detailed plan to either O. Employee benefits that the intangible asset may terminate employment before the normal retirement date, be impaired. The amortisation i. Defined contribution plans period and the amortisation or to provide termination method for an intangible A defined contribution plan benefits as a result of an offer asset with a finite useful life is a post-employment benefit made to encourage voluntary are reviewed at least at the plan under which an entity redundancy. Termination benefits end of each reporting period. pays fixed contributions into a for voluntary redundancies are Changes in the expected useful separate entity and has no legal recognised if the Bank has made life or the expected pattern of or constructive obligation to pay an offer of voluntary redundancy, consumption of future economic further amounts. Obligations it is probable that the offer will benefits embodied in the asset for contributions to defined be accepted, and the number of are considered to modify the contribution plans are recognised acceptances can be estimated amortisation period or method, as personnel expenses in profit reliably. If benefits are payable as appropriate, and are treated as or loss in the periods during more than 12 months after the changes in accounting estimates. which related services are reporting period, then they are The amortisation expense on rendered. Prepaid contributions discounted to their present value. are recognised as an asset to the intangible assets with finite lives Other Long term Employee extent that a cash refund or a is recognised in profit or loss benefits in the expense category that is reduction in future payments is consistent with the function of available. iv. Service gratuity the intangible assets. ii. Short-term benefits Gratuity expenses are accrued Gains or losses arising from for staff whose contracts contain Short-term benefits consist derecognition of an intangible gratuity benefits in specific of salaries, bonuses and any asset are measured as the contributions as specified by non-monetary benefits such as difference between the net their contracts and payments medical aid contributions and disposal proceeds and the made after the contract term has free services. They exclude equity carrying amount of the asset and elapsed. based benefits and termination are recognised in the statement benefits. Short-term employee of profit or loss when the asset is benefit obligations are measured derecognised. P. Contingent liabilities and on an undiscounted basis and are commitments expensed as the related service is The Bank enters into various N. Share capital provided. irrevocable commitments and A liability is recognised for the Ordinary shares are classified contingent liabilities in order amount expected to be paid as “share capital” in equity and to meet the financial needs of under short-term cash bonus are measured at the fair value its customers. These consist of or profit-sharing plans if the of the consideration receivable, financial guarantees, letters of Bank has a present legal or net of transaction costs, without credit and other commitments constructive obligation to pay this subsequent re-measurement. to lend. Even though these amount as a result of past service Any premium received over and obligations may not be provided by the employee and above the par value of the shares recognised on the statement of
119 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
financial position, they contain value less costs of disposal, an Policy applicable from 1 January credit risk and therefore, form appropriate valuation model 2019 part of the overall risk of the is used. These calculations At inception of a contract, the Bank. are corroborated by valuation Bank assesses whether a contract multiples, quoted share prices is, or contains, a lease. Q. Earnings per share for publicly traded subsidiaries A contract is, or contains, a lease The Bank presents basic and or other available fair value if the contract conveys the right diluted earnings per share (EPS) indicators. to control the use of an identified data for its ordinary shares. Basic For all assets, an assessment is asset for a period of time in EPS is calculated by dividing made at each reporting date as exchange for consideration. the profit or loss attributable to to whether there is any indication To assess whether a contract ordinary shareholders of the Bank that previously recognised conveys the right to control the by the weighted average number impairment losses may no longer use of an identified asset, the of ordinary shares outstanding exist or may have decreased. Bank uses the definition of a during the period. Diluted EPS If such indication exists, the lease in IFRS 16. is determined by adjusting the Bank estimates the asset’s profit or loss attributable to recoverable amount. A previously This policy is applied to contracts ordinary shareholders and the recognised impairment loss is entered into (or changed) on or weighted average number of reversed only if there has been after 1 January 2019. ordinary shares outstanding for a change in the assumptions As a lessee the effects of all any potentially used to determine the asset’s dilutive ordinary shares. recoverable amount since the last At commencement or on impairment loss was recognised. modification of a contract that The reversal is limited so that contains a lease component, the R. Impairment of non- the carrying amount of the asset Bank allocates the consideration financial assets does not exceed its recoverable in the contract to each lease component on the basis of its The Bank assesses at each amount, nor exceed the carrying relative stand‑alone prices. reporting date whether there amount that would have been However, for the leases of is an indication that an asset determined, net of depreciation property the Bank has elected may be impaired. If any or amortisation, had no not to separate non‑lease indication exists, or when annual impairment loss been recognised components and account for the impairment testing for an asset for the asset in prior years. lease and non‑lease components is required, the Bank estimates The Bank did not need to record as a single lease component. the asset’s recoverable amount. any impairment loss for its An asset’s recoverable amount is non-financial assets during the The Bank recognises a the higher of an asset’s fair value reporting period. right‑of‑use asset and a less costs of disposal and its lease liability at the lease value in use. Where the carrying commencement date. The amount of an asset exceeds its S. Accounting for leases right‑of‑use asset is initially recoverable amount, the asset measured at cost, which The Bank has applied IFRS 16 is considered impaired and is comprises the initial amount of using the modified retrospective written down to its recoverable the lease liability adjusted for approach and therefore the amount. any lease payments made at comparative information has not or before the commencement In assessing value in use, the been restated and continues to date, plus any initial direct costs estimated future cash flows be reported under IAS 17. The incurred and an estimate of costs are discounted to their present details of accounting policies to dismantle and remove the value using a pre–tax discount under IAS 17 are disclosed underlying asset or to restore the rate that reflects current market separately. underlying asset or the site on assessments of the time value which it is located, less any lease of money and the risks specific incentives received. to the asset. In determining fair
120 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
The right‑of‑use asset is rate, initially measured using subsequently depreciated using the index or rate as at the Short-term leases and leases of the straight‑line method from commencement date; low-value assets the commencement date to the The Bank has elected not to — amounts expected to be end of the lease term, unless recognise right‑of‑use assets payable under a residual the lease transfers ownership of and lease liabilities for leases of value guarantee; and the underlying asset to the Bank low value assets and short‑term by the end of the lease term leases, including IT equipment. — the exercise price under or the cost of the right‑of‑use The Bank recognises the lease a purchase option that asset reflects that the Bank will payments associated with these the Bank is reasonably exercise a purchase option. In leases as an expense on a certain to exercise, lease that case the right‑of‑use asset straight‑line basis over the lease payments in an optional will be depreciated over the term. useful life of the underlying renewal period if the Bank asset, which is determined on the is reasonably certain to As a lessor exercise an extension same basis as those of property At inception or on modification of option, and penalties for and equipment. In addition, the a contract that contains a lease early termination of a lease right‑of‑use asset is periodically component, the Bank allocates unless the Bank is reasonably reduced by impairment losses, the consideration in the contract certain not to terminate early. if any, and adjusted for certain to each lease component on the measurements of the lease The lease liability is measured basis of their relative stand- liability. at amortised cost using the alone prices. effective interest method. It When the Bank acts as a lessor, is remeasured when there The lease liability is initially it determines at lease inception is a change in future lease measured at the present value of whether each lease is a finance payments arising from a change the lease payments that are not lease or an operating lease. paid at the commencement date, in an index or rate, if there is a To classify each lease, the Bank discounted using the interest rate change in the Bank’s estimate makes an overall assessment implicit in the lease or, if that rate of the amount expected to be of whether the lease transfers cannot be readily determined, payable under a residual value substantially all of the risks and and the Bank’s incremental guarantee, if the Bank changes rewards incidental to ownership borrowing rate. Generally, the its assessment of whether it will of the underlying asset. If this Bank uses its incremental exercise a purchase, extension or is the case, then the lease is a borrowing rate as the discount termination option or if there is a finance lease; if not, then it is an rate. revised in‑substance fixed lease payment. operating lease. As part of this The Company determines its assessment, the Bank considers When the lease liability is incremental borrowing rate by certain indicators such as remeasured in this way, a obtaining interest rates from whether the lease is for the major corresponding adjustment is various external financing sources part of the economic life of the made to the carrying amount and makes certain adjustments to asset. reflect the terms of the lease and of the right‑of‑use asset, or When the Bank is an intermediate type of the asset leased. is recorded in profit or loss if the carrying amount of the lessor, it accounts for its interests Lease payments included in the right‑of‑use asset has been in the head lease and the sub- measurement of the lease liability reduced to zero. lease separately. It assesses the comprise the following: lease classification of a sub-lease The Bank presents right‑of‑use with reference to the right-of- assets that do not meet the — fixed payments, including use asset arising from the head definition of investment property in‑substance fixed payments; lease, not with reference to the in separately and lease liabilities underlying asset. If a head lease — variable lease payments that separately in the statement of is a short-term lease to which the depend on an index or a financial position. Company applies the exemption
121 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
described above, then it classifies more than an insignificant of the underlying asset. If this the sub-lease as an operating amount of the output; was the case, then the lease was lease. a finance lease; if not, then it was — the purchaser had the ability an operating lease. As part of this If an arrangement contains lease or right to control physical assessment the Bank considered and non-lease components, access to the asset while certain indicators such as then the Bank applies IFRS 15 to obtaining or controlling more whether the lease was for the allocate the consideration in the than an insignificant amount major part of the economic life of contract. of the output; or the asset. The Bank applies the de- In the comparative period, as a recognition and impairment Amounts recognised in profit lessee the Bank classified leases requirements in IFRS 9 to the that transferred substantially or loss net investment in the lease. The all of the risks and rewards of Ushs’000 Bank further regularly reviews ownership as finance leases. estimated unguaranteed residual 2019-Leases under When this was the case, the values used in calculating the IFRS 16 leased assets were measured gross investment in the lease. Interest on lease - initially at an amount equal to liabilities The Bank recognises lease the lower of their fair value and payments received under the present value of the minimum Depreciation - operating leases as income on a lease payments. Minimum lease relating to right of straight- line basis over the lease payments were the payments use assets term as part of ‘other income’. over the lease term that the lessee was required to make, Generally, the accounting policies 2018-Operating excluding any contingent rent. applicable to the Bank as a lessor leases under IAS 17 Subsequent to initial recognition, in the comparative period were the assets were accounted for in not different from IFRS 16. accordance with the accounting Lease rental 876,195 Policy applicable before 1 January policy applicable to that asset. payment 2019 Assets held under other leases As a lessee were classified as operating T. Kuwait Special Fund For contracts entered into leases and were not recognised in The Bank manages these before 1 January 2019, the the Bank’s statement of financial funds in trust on behalf of the Bank determined whether the position. Payments made under Government of Uganda. The arrangement was or contained a operating leases were recognised funds are recorded as a liability lease based on the assessment of in profit or loss on a straight‑line on receipt of the funds and whether: basis over the term of the lease. Lease incentives received were the corresponding entries are recorded under cash and bank — fulfilment of the arrangement recognised as an integral part of balances or loans and advances was dependent on the use of the total lease expense, over the to customers. a specific asset or assets; and term of the lease. As a lessor Grants are recognised where — the arrangement had there is reasonable assurance conveyed a right to use When the Bank acted as a lessor, that the grant will be received the asset. An arrangement it determined at lease inception and all attached conditions will conveyed the right to use the whether each lease was a finance be complied with. Where the asset if one of the following lease or an operating lease. grant relates to an asset, it is was met: To classify each lease, the Bank recognized as deferred income made an overall assessment of and released to income in equal — the purchaser had the ability whether the lease transferred amounts over the expected useful or right to operate the asset substantially all of the risks and life of the related asset. When the while obtaining or controlling rewards incidental to ownership grant relates to an expense item
122 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
it is recognized as income over the previous year except for the At the date of authorisation of the the period necessary to match adoption of the standards and financial statements of Uganda the grant on a systematic basis amendments effective for the Development Bank Limited for to the costs that it is intended to current period as set out note 3 the year ended 31 December compensate. to the financial statements. 2019, the following Standards and Interpretations were in issue but The accounting policies are U. Standards issued but not not yet effective: consistent with those reported in yet effective
Annual periods beginning Standard on or after IAS 1 Presentation of Financial Statements and IAS 8 1 January 2020 Accounting Policies, Changes in Accounting Estimates and Errors – Amendment (Effective for periods beginning 1 January 2020 with earlier application permitted). IFRS 3 Business Combinations - amendment (1 January 2020 with 1 January 2020 earlier application permitted) Conceptual Amendments to References to Conceptual Framework in 1 January 2020 Framework IFRS Standards amendments IFRS 10 and IAS Sale or Contribution of Assets between an investor and To be determined 28 its associate or joint venture (The effective date is yet to be confirmed)
IAS 1 Presentation of Financial amendments will be applied The IASB decided to revise the Statements and IAS 8 prospectively. Conceptual Framework because certain important issues were Accounting Policies, Changes The impact on the annual not covered and certain guidance in Accounting Estimates and financial statements has not yet was unclear or out of date. The Errors – Amendment (Effective been fully determined. for periods beginning 1 revised Conceptual Framework, January 2020 with earlier IFRS 3 Business Combinations issued by the IASB in March 2018, application permitted) - amendment (1 January includes: 2020 with earlier application The amendments clarify the — a new chapter on permitted) definition of material and how it measurement; should be applied by including in The amendments clarify the the definition guidance that until definition of a business, with the — guidance on reporting now has featured elsewhere in objective of assisting entities to financial performance; IFRS Standards. In addition, the determine whether a transaction explanations accompanying the should be accounted for as a — improved definitions of an definition have been improved. business combination or as an asset and a liability, and The amendments ensure that asset acquisition. guidance supporting these the definition of material is definitions; and consistent across all IFRS The amendment is not expected standards. The amendments will to have a material impact on the — Clarifications in important be applied prospectively. The Bank. areas, such as the roles of amendment is not expected to stewardship, prudence and Amendments to References to have a significant impact on the measurement uncertainty in Conceptual Framework in IFRS annual financial statements. The financial reporting. Standards
123 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
The IASB also updated references partial gain or loss is recognised Committee is assisted in these to the Conceptual Framework when a transaction involves functions by internal Audit. in IFRS Standards by issuing assets that do not constitute a Internal Audit undertakes both Amendments to References to business, even if these assets regular and adhoc reviews the Conceptual Framework in are housed in a subsidiary. The of risk management controls IFRS Standards. This was done amendments will be applied and procedures, the results of to support transition to the prospectively and have no which are reported to the Audit revised Conceptual Framework impact on the Bank’s financial Committee. The Bank’s policy is for companies that develop statements. that risk management processes accounting policies using the are audited by the Internal Audit Conceptual Framework when function, which examines both no IFRS Standard applies to a the adequacy of the procedures particular transaction. 5. Financial Risk and the Bank’s compliance with the procedures. Internal Audit Although we expect this to be Management discusses the results of its rare, some companies may use assessment with management the Framework as a reference The Bank has exposure to various and reports its findings and for selecting their accounting risks from its use of financial recommendations to the Audit policies in the absence of specific instruments including; credit, and Risk committee. IFRS requirements. In these liquidity and market risk. cases, companies should review The Bank’s board of directors The Board Strategic Planning those policies and apply the new has overall responsibility for Committee is responsible for guidance retrospectively as of the establishment and oversight managing its assets and liabilities 1 January 2020, unless the new of the Bank’s risk management and the overall financial guidance contains specific scope framework. structure. It is also responsible outs. for the funding and liquidity risks The Bank’s risk management of the Bank. Management’s assessment policies are established to indicates that the application identify and analyse the risks Concentrations arise when a of these amendments will have faced by the Bank, to set number of counterparties are no material impact on the appropriate risk limits and engaged in similar business disclosures or on the amounts controls, and to monitor risks activities or have similar recognised in the Bank’s financial and adherence to limits. Risk economic features that would statements. management policies and cause their ability to meet systems are reviewed regularly contractual obligations to be IFRS 10 and IAS 28 Sale to reflect changes in market similarly affected by changes or Contribution of Assets conditions, products and services in economic, political or other between an investor and its offered. The Bank through its conditions. Concentrations associate or joint venture procedures aims to develop a indicate the relative sensitivity (The effective date is yet to be disciplined and constructive of the Bank’s performance confirmed) control environment in which all to developments affecting a particular industry. The amendments address an employees understand their roles inconsistency between the and obligations. a. Credit risk requirements in IFRS 10 and those The Bank’s Audit and Risk in IAS 28, in dealing with the sale Committee is responsible for Credit risk is the risk of financial or contribution of assets between monitoring compliance with loss to the Bank if a customer an investor and its associate the Bank’s risk management or counterparty to a financial or joint venture. The main policies and procedures, and instrument fails to meet its consequence of the amendments for reviewing the adequacy of contractual obligations, and is that a full gain or loss is the risk management framework arises principally from the Bank’s recognised when a transaction in relation to the risks faced by loan and advances to customers. involves a business (whether it is the Bank. The Audit and Risk For risk management reporting housed in a subsidiary or not). A purposes, the Bank considers all
124 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
elements of credit risk exposure customers guarantees that may and interest due according to such as individual obligator require that the Bank makes the contractual terms of the loan default risk and sector risk. payments on their behalf and agreement(s). enters into commitments to In the normal course of its The Bank measures the loss extend credit lines to secure their business, the Bank incurs credit allowance on loans and advances liquidity needs. Letters of credit risk from deposits with banks, at an amount equal to the and guarantees commit the Bank loans and advances to customers, 12-month or lifetime expected to make payments on behalf staff loans and other assets. credit losses depending on of customers in the event of a whether or not the credit risk The credit risk exposure is, specific act. Such commitments has increased significantly since however, managed through expose the Bank to similar risks initial recognition. constant monitoring of the to loans and are mitigated by status of financial institutions the same control processes and The detailed disclosures relating where deposits are maintained. policies. to credit risk have been included As a policy, the Bank places its in note 20 (loans and advances). deposits with strong local banks. Impaired loans and advances The Bank’s maximum exposure to Impaired loans and advances are credit risk is represented by the Credit-related commitments those which the Bank determines following balances: risks that it is probable that it will be The Bank makes available to its unable to collect all principal
2019 2018 Ushs ‘000 Ushs ‘000 Bank balances 21,689,075 30,694,491 Deposits held in other banks 81,458,271 13,688,375 Loans and advances to customers 334,414,806 276,693,583 Staff loans and advances 3,891,810 2,392,468 Other assets 5,216,463 4,890,831 446,670,425 328,359,748
The above table represents the financial position. financial assets, the amounts in worst case scenario of credit risk the table represent gross carrying exposure to the Bank as at 31 Credit quality analysis amounts. December 2019 and 31 December The following table sets out Explanation of the terms ‘Stage 1’, 2018 without taking into account information about the credit ‘Stage 2’ and ‘Stage 3’ is included any collateral held. The exposures quality of financial assets under Note 20(g) of the financial are based on carrying amounts measured at amortised cost. statements. as reported in the statement of Unless specifically indicated, for
125 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
2019 Stage 1 Stage 2 Stage 3 Total Ushs’000 Ushs’000 Ushs’000 Ushs’000 Loans and advances at amortised cost 229,739,320 57,131,911 67,925,007 354,796,238 Loss allowance (8,148,216) (11,612,116) (621,100) (20,381,432) Carrying amount 221,591,104 45,519,795 67,303,907 334,414,806
Staff loans and advances 6,193,593 558,954 196,620 6,949,167 Loss allowance (85,560) (73,620) (56,452) (215,632) Carrying amount 6,108,033 485,334 140,168 6,733,535
2018 Stage 1 Stage 2 Stage 3 Total
Ushs’000 Ushs’000 Ushs’000 Ushs’000 Loans and advances at amortised cost 146,602,217 97,072,244 65,950,168 309,624,629 Loss allowance (4,454,792) (13,742,191) (14,734,063) (32,931,046) Carrying amount 142,147,425 83,330,053 51,216,105 276,693,583
Staff loans and advances 4,328,610 227,315 851,394 5,407,319 Loss allowance (246,966) (111,166) (449,947) (808,079) Carrying amount 4,081,644 116,149 401,447 4,599,240
Collateral security held and Amounts arising from ECL quantitative and qualitative other enhancements information and analysis, Inputs, assumptions and based on the Bank’s historical The Bank holds collateral and techniques used for estimating experience and expert credit other credit enhancements impairment. assessment and including against certain credit exposures. See accounting policy note 4 (d). forward-looking information. 74% (2018: 83%) of the total maximum exposure is derived The objective of the assessment from loans and advances to Significant increase in credit is to identify whether a significant customers. Investment in fixed risk increase in credit risk has deposits represents 18% (2018: When determining whether the occurred for an exposure by 4%) of the maximum exposure. risk of default on a financial comparing: Loans and advances are secured instrument has increased by collateral mainly in the form of significantly since initial — The remaining lifetime charges over land and buildings recognition, the Bank considers probability of default (PD) as or personal/other guarantees. reasonable and supportable at the reporting date; with The market sale value of the information that is relevant and collateral held as at 31 December available without undue cost — The remaining lifetime PD 2019 is Ushs 1.15 trillion (2018: or effort. This includes both for this point in time that Ushs 976 billion). was estimated at the time
126 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
of initial recognition of the determined after considering -12month ECL measurement exposure (adjusted where the grace period that might be to credit impaired; and relevant for changes in available to the borrower. If there prepayment expectations). is evidence that there is no longer — there is no unwarranted a significant increase in credit volatility in loss allowance — The Bank uses the criteria risk relative to initial recognition, from transfers between for determining whether then the loss allowance on an -12month PD (Stage 1) and there has been a significant instrument returns to being lifetime PD (Stage 2). increase in credit risk: measured as 12-month ECL. Some qualitative indicators of — quantitative test based on an increase in credit risk, such Definition of default the days past due; and as delinquency or forbearance, The Bank considers a financial may be indicative of an increased asset to be in default when: — qualitative indicators; risk of default that persists after the indicator itself has ceased — The borrower is unlikely to to exist. In these cases, the Bank pay its credit obligations Generating the term structure determines a probation period to the Bank in full, without of PD during which the financial asset recourse by the Bank to Credit risk grades are a primary is required to demonstrate good actions such as realising input into the determination behaviour to provide evidence security (if any is held); of the term structure of PD for that its credit risk has declined exposures. The Bank collects sufficiently. When contractual — the borrower is more than performance and default terms of a loan have been 90 days past due on any information about its credit risk modified, evidence that the material credit obligation to exposures analysed by sector, criteria for recognising lifetime the Bank.; or by type of product and borrower ECL are no longer met includes as well as by credit risk grading. a history of up-to-date payment — it is becoming probable that For some portfolios, information performance against the modified the borrower will restructure purchased from external credit contractual terms the asset as a result of reference agencies is also used. bankruptcy due to the The Bank monitors the borrower’s inability to pay its The Bank employs statistical effectiveness of the criteria used credit obligations. models to analyse the data to identify significant increases in collected and generate estimates credit risk by regular reviews to of the remaining lifetime PD of confirm that: Incorporating forward looking exposures and how these are information expected to change as a result of — the criteria are capable the passage of time. of identifying significant The Bank incorporates forward- increases in credit risk before looking information into both an exposure is in default; the assessment of whether the Determining whether credit credit risk of an instrument has risk has increased significantly — the criteria do not align with increased significantly since the point in time when an its initial recognition and the The Bank considers that a asset becomes 30 days past measurement of ECL. significant increase in credit due; risk occurs no later than when The Bank formulates three economic scenarios: a base case, an asset is more than 30 days — the average time between the which is the median scenario past due. Days past due are identification of a significant assigned a 50% probability determined by counting the increase in credit risk and of occurring, and two less number of days since the earliest default appears reasonable; elapsed due date in respect likely scenarios, one best of which full payment has not — exposures are not generally case scenario assigned a 20% been received. Due dates are transferred directly from probability of occurring and a worst case scenario assigned
127 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
a 30% probability of occurring. The Bank has identified and The key drivers for credit risk are: The base case is aligned with documented key drivers of credit GDP growth, inflation, foreign information used by the Bank for risk and credit losses for each exchange and CBR. other purposes such as strategic portfolio of financial instruments The economic scenarios used as planning and budgeting. External and, using an analysis of at 31 December 2019 included information considered includes historical data, has estimated the following key indicators for economic data and forecasts relationships between macro- Uganda for four years up to 31 published by governmental economic variables and credit December 2023. organisations. risk and credit losses.
Base Case 2020 2021 2022 2023 GDP growth 5.7% 5.7% 5.9% 5.9% Inflation 3.5% 4.9% 5.2% 5.3% CBR 10.0% 12.0% 12.0% 12.0% Exchange rates 3,724 3,855 3,930 3,989
Worst Case 2020 2021 2022 2023 GDP growth 3.19% 3.19% 3.31% 3.31% Inflation 3.93% 5.51% 5.84% 5.95% CBR 10.18% 12.22% 12.22% 12.22% Exchange rates 3,806 3,940 4,017 4,077
Best Case 2020 2021 2022 2023 GDP growth 7.6% 7.6% 7.8% 7.8% Inflation 3.1% 4.3% 4.6% 4.7% CBR 9.8% 11.8% 11.8% 11.8% Exchange rates 3,654 3,782 3,856 3,914
b. Market risks management of market risk is businesses and local markets. to monitor the sensitivity of These scenarios are used to Market risk is the risk that the projected net interest income illustrate the effect on Bank’s fair value or future cash flows under varying interest rate earnings and capital. of financial instruments will scenarios (simulation modelling) fluctuate due to changes in and the sensitivity of future i. Interest rate risk market variables such as interest earnings and capital to varying Interest rate risk arises from the rates, foreign exchange rates and foreign exchange rates. Uganda possibility that changes in interest equity prices. Development Bank aims, through rates will affect future cash flows The objective of Uganda its management of market or the fair values of financial Development Bank’s market risk risk, to mitigate the impact instruments. management is to manage and of prospective interest rate The Bank is exposed to various control market risk exposures movements and foreign exchange risks associated with the effect of in order to optimise return on fluctuations which could reduce fluctuations in the prevailing level risk while maintaining a market future earnings and capital. of market interest rates on its profile consistent with the Bank’s For simulation modelling, the financial position and cash flows. mission. Bank uses a combination of Management closely monitors the A principal part of the Bank’s scenarios relevant to local
128 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
interest rate trends to minimise — The interest rate changes assumption that all net the potential adverse impact of will have a significant effect currency positions are highly interest rate changes. on interest sensitive assets effective. and liabilities and hence — The base currency in simulation modelling is The interest rate risks sensitivity which the Bank’s business applied to net interest analysis is based on the following is transacted is Uganda margins. assumptions: Shillings. — The interest rates of all — Changes in the market maturities move by the same The table below sets out the interest rates affect the amount and, therefore, do impact on future net interest interest income or expenses not reflect the potential income of an incremental 10% on financial instruments with impact on net interest parallel fall or rise in all yield variable interest rates; income of some rates curves at the beginning of each — Changes in market interest changing while others remain quarter during the 12 months rates only affect interest unchanged. from 1 January 2019. Assuming no income or expenses — The projections make other management actions, a series of in relation to financial assumptions including that such rise and fall would impact instruments with fixed all positions run to maturity. the future earnings and capital as interest rates if these are illustrated in the table below: recognised at their fair — The currency risk sensitivity value; analysis is based on the
10% fall in interest rates 10% rise in interest rates Effect of profit Effect on Effect of profit before tax equity before tax Effect on equity Ushs’000 Ushs’000 Ushs’000 Ushs’000 At 31 December 2019 Profit before income tax 310,455 310,455 (310,455) (310,455)
At 31 December 2018 Profit before income tax 221,702 221,702 (221,702) (221,702)
The Bank is exposed to various risks associated with the effects of fluctuations of the levels of prevailing market interest rates on its financial position and cash flows. The table below summarises the exposure to interest rate risks. Included in the table below are the Bank’s interest bearing assets and liabilities at carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates. The Bank does not bear an interest rate risk on off statement of financial position items.
129 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Up to 1yr 1 to 3yrs 3 to 5yrs Over 5yrs Total Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 31 December 2019 Financial assets Deposits held with banks 81,458,271 - - - 81,458,271 Loans and advances 32,807,365 11,427,670 56,230,369 233,949,402 334,414,806 Staff loans and advances 656,688 52,305 393,407 5,631,135 6,733,535 Total financial assets 114,922,324 11,479,975 56,623,776 239,580,537 422,606,612
Financial liabilities Borrowings 6,730,817 8,725,966 38,824,128 16,260,635 70,541,546 Total financial liabilities 6,730,817 8,725,966 38,824,128 16,260,635 70,541,546
Interest sensitivity gap 108,191,507 2,754,009 17,799,648 223,319,902 352,065,066
31 December 2018 Total financial assets 44,360,606 67,321,366 59,986,312 121,106,143 292,774,426 Total financial liabilities 15,287,072 4,587,843 6,039,473 31,563,672 57,478,060
Interest sensitivity gap 29,073,534 62,733,523 53,946,839 89,542,471 235,296,366
b Market risks (Continued) arising from various currencies basis by management. primarily the US Dollar. Foreign ii. Currency risk The table below sets out the exchange risk largely arises impact on future earnings of an Currency risk is the risk that the from recognised financial incremental 10% parallel fall or value of a financial instrument assets and certain liabilities. rise in all foreign denominated will fluctuate due to changes Currency exposure arising from balances as at 31 December 2019. in foreign exchange rates. The liabilities denominated in foreign Bank’s functional currency is currencies is managed primarily Assuming no management actions, the Uganda Shilling (Ushs) and through the holding of bank a series of such rise and fall would funding, income and expenses balances in the relevant foreign impact the future earnings and are largely denominated in currencies. Foreign exchange capital as illustrated in the table this currency. As a result it is exposure is reviewed on a regular below: exposed to foreign exchange risks 31 December 2019
10% Depreciation 10% Appreciation Effect on profit Effect on profit before tax Effect on equity before tax Effect on equity Ushs’000 Ushs’000 Ushs’000 Ushs’000
GBP (9,723) (9,723) 9,723 9,723 USD (2,303,402) (2,303,402) 2,303,402 2,303,402
Total (2,313,125) (2,313,125) 2,313,125 2,313,125 130 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
31 December 2018
10% Depreciation 10% Appreciation Effect on profit Effect on profit before tax Effect on equity before tax Effect on equity Ushs’000 Ushs’000 Ushs’000 Ushs’000
GBP (4,821) (4,821) 4,821 4,821 USD (1,238,679) (1,238,679) 1,238,679 1,238,679
Total (1,243,500) (1,243,500) 1,243,500 1,243,500 ii. Currency risk (Continued) The Bank’s currency position is as follows:
US Uganda shillings Dollars Euro GBP Total Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 31 December 2019 Financial assets Cash and cash equivalents 15,971,321 5,715,310 2,444 21,689,075 Deposits held in banks 61,373,040 20,085,231 - - 81,458,271 Staff loans and advances 3,891,810 - - - 3,891,810 Other assets (excluding non- financial assets) 5,169,148 47,315 - - 5,216,463
Loans and advances 251,584,508 82,830,298 - - 334,414,806 Total financial assets 337,989,827 108,678,154 - 2,444 446,670,425
Financial liabilities Amounts due to Bank of Uganda 16,017,692 - - - 16,017,692 Other liabilities 11,793,509 3,269,088 18,513 22,542 15,103,652 Borrowings - 70,541,546 - - 70,541,546 UNCDF Fund 664,670 - - - 664,670 Kuwait special fund 2,195,258 28,582,658 - - 30,777,916 Total financial liabilities 30,671,129 102,393,292 18,513 22,542 133,105,476 Net currency position 307,318,698 6,284,862 (18,513) (20,098) 313,564,949
31 December 2018 Total financial assets 223,884,467 102,261,830 48,211 - 326,194,508 Total financial liabilities 23,884,895 89,008,692 - - 112,893,587 Net currency position 199,999,572 13,253,138 48,211 - 213,300,921
131 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
ii. Equity price risk future values of the investment approves all equity investment stock prices. The Bank manages decisions. Equity price risk is the risk the equity price risk through that the fair value of equities At the reporting date, the diversification and by placing decreases as the result of exposure to equity securities at limits on individual and total changes in the level of equity fair value was Ushs 127 million. equity instruments. Reports on indices and individual stocks. An increase and a decrease of the equity portfolio are submitted 10% in the share prices could The Bank’s equity shares are to the Bank’s senior management have the following impact on susceptible to market price risk on a regular basis. The Bank’s the statement of comprehensive arising from uncertainties about Board of Directors reviews and income:
Change Effect on profit before tax Year-end share price 2019 2018 Ushs’000 Ushs’000 KENGEN +10% 132 163 Uganda Clays Ltd +10% 9,640 19,280 The New Vision Ltd +10% 2,962 3,318
KENGEN -10% (132) (163) Uganda Clays Ltd -10% (9,640) (19,280) The New Vision Ltd -10% (2,962) (3,318)
iii. Prepayment risk positions is not available to the The Bank maintains adequate Bank on acceptable terms. resources to meet its obligations. Prepayment risk is the risk that the Bank will incur a Liquidity risk arises in the Source of funding financial loss because its general funding of the Bank’s The Bank maintains a diversified customers and counter- activities and in the management and stable funding base comprising parties repay or request of positions. The matching from Development partners. The repayment earlier or later and controlled mismatching Bank also obtains periodic funding than expected. of the maturities and interest from the Government of Uganda. rates of assets and liabilities is (c) Liquidity risk fundamental to the management Management of the liquidity risk Liquidity risk is defined as the of the Bank. It is unusual for risk that the Bank will encounter financial institutions to be The Bank’s approach of managing difficulty in meeting obligations completely matched since liquidity is to ensure that as far as associated with financial business transacted is often of possible, that it will always have liabilities that are settled by uncertain terms and of different sufficient liquidity to meet its delivering cash or another types. An unmatched position liabilities when due under both financial asset. Liquidity risk potentially enhances profitability normal and stressed conditions arises because of the possibility but can also increase the risk of without incurring unacceptable that the Bank might be unable losses. The maturity of assets losses or risking damage to the to meet its payment obligations and liabilities and the ability to Bank’s reputation. when they fall due as a result of replace, at an acceptable cost, In order to manage liquidity risk, mismatches in the timing of the interest bearing liabilities as they the Bank invests its surplus reserves cash flows under both normal mature are important factors in time deposits with maturities and stress circumstances. Such in assessing the liquidity of the concentrated in short term maturity scenarios could occur when Bank and its exposure to changes of one to three months. funding needed for illiquid asset in interest and exchange rates.
132 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 (c) Liquidity risk (Continued) (c) Liquidity
133 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
— financial assets that are debt Going concern 6. Use of Estimates instruments and; and Judgements The directors have assessed the — Loan commitments issued. Bank’s ability to continue as a going concern and are satisfied In preparing these financial No impairment loss is recognised that the Bank has the resources statements, management has on equity investments. to continue in business for the made judgements, estimates foreseeable future. This has and assumptions that affect The Bank measures loss been based on the fact that they the application of the Bank’s allowances at an amount equal are not aware of any material accounting policies and the to lifetime ECL, except for the uncertainties that may cast reported amounts of assets, following, for which they are significant doubt upon the Bank’s liabilities, income and expenses. measured as 12-month ECL: ability to continue as a going Actual results may differ from — debt investment securities concern. these estimates. that are determined to Estimates and underlying have low credit risk at the Valuation of the investment assumptions are reviewed on reporting date; and property and property and an ongoing basis. Revisions equipment to estimates are recognised — other financial instruments The Bank measures its investment prospectively. (other than lease receivables) property and property and on which credit risk has not Information about assumptions equipment at fair value with increased significantly since and estimation uncertainties that the changes in the fair value their initial recognition. have a significant risk of resulting recognised in profit or loss for investment property and other in a material adjustment in the Useful life of property and comprehensive income for year ending 31 December 2019 is equipment set out below: property and equipment. These Property and equipment is are valued with reference to Recognition and measurement depreciated over its useful life market based evidence, using of provisions taking into account residual comparable prices adjusted for values, where appropriate. The specific market factors such as Provisions are recognised when actual lives of the assets and location, condition of the asset. the Bank has a present legal or residual values are assessed constructive obligation as a result During the year ended 31 annually and may vary depending of a past event, it is probable December 2019, the Bank engaged on a number of factors. that an outflow of resources an independent valuation will be required to settle the Residual value assessments specialist to determine the fair obligation and a reliable estimate consider issues such as future value of its investment property. of an amount can be made. The market conditions, the remaining Land and Buildings have not been Bank’s contingent liabilities have life of the asset and projected revalued during the year. The been disclosed in Note 36 of the disposal values. carrying amounts of investment financial statements. property and plant, property Revaluation of buildings and equipment are disclosed in Impairment of loans and The freehold land and buildings notes 22 and 23 to the financial advances categories of property and statements. Assets accounted for at amortised equipment are measured at cost are evaluated for impairment revalued amounts. The fair 7. Fair Value on the basis described in note 4 value is determined based (d). on the cost of equivalent Measurement properties obtained by summing The Bank recognises loss The fair values of financial assets up all the components of the allowances for ECL on the and financial liabilities that are building structure and other following financial instruments traded in active markets are improvements. that are not measured at FVTPL: based on quoted market prices
134 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
or dealer price quotations. For all instruments valued The Bank’s current valuation other financial instruments, the using: quoted market techniques include comparison Bank determines fair values using prices in active markets with similar instruments for other valuation techniques. for similar instruments; which market observable prices quoted prices for identical exist and other valuation models. For financial instruments that or similar instruments Assumptions and inputs used trade infrequently and have little in markets that are in valuation techniques include price transparency, fair value considered less than risk-free and benchmark interest is less objective, and requires active; or other valuation rates, credit spreads and other varying degrees of judgement techniques in which all premia used in estimating depending on liquidity, significant inputs are discount rates, bond and equity concentration, uncertainty directly or indirectly prices, foreign currency exchange of market factors, pricing observable from market rates, equity and equity index assumptions and other risks data. prices and expected price affecting the specific instruments. volatilities and correlations. • Level 3: inputs that Valuation models are unobservable. This The objective of valuation The Bank measures fair values category includes all techniques is to arrive at a fair using the following fair value instruments for which value measurement that reflects hierarchy, which reflects the the valuation technique the price that would be received significance of the inputs used in includes inputs not based to sell the asset or paid to making the measurements. on observable data and transfer the liability in an orderly the unobservable inputs transaction between market • Level 1: inputs that are have a significant effect participants at the measurement quoted market prices on the instrument’s date. valuation. This category (unadjusted) in active Model inputs and values are includes instruments markets for identical calibrated against historical data that are valued based on instruments. and published forecasts and, quoted prices for similar where possible, against current or • Level 2: inputs other than instruments for which recent observed transactions in quoted prices included significant unobservable different instruments and against within Level 1 that are adjustments or broker quotes. observable either directly assumptions are required (i.e. as prices) or indirectly to reflect differences (i.e. derived from prices). between the instruments. This category includes
135 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
136 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
The fair value of the financial measured at fair value are in around the Central assets and liabilities is included Notes 19, 22 and 23. Business area in the city at the amount that would be and the subsequent high The following methods and received to sell an asset or paid rentals in the locality. assumptions were used to to transfer a liability in an orderly estimate the fair values: • The fair value of the transaction between market Bank’s leasehold land and participants at the measurement • The fair values of buildings was estimated date. The fair value measurement the quoted equity based on the replacement is based on the presumption that investments are based on and depreciated the transaction to sell the asset price quotations at the replacement values of or transfer the liability takes reporting date. similar assets within the place either: • The fair value of the same locality. investment property has • In the principal market for Fair value versus carrying been estimated using the the asset or liability, or amounts of financial assets depreciated replacement • In the absence of a and liabilities carried at value of a similar storied principal market, in amortised cost building. The valuation the most advantageous requires management to The fair values of financial assets market for the asset or make certain assumptions and liabilities together with the liability. such as building costs carrying amounts shown in the Other fair value related in the country, the high statement of financial position disclosures for assets that are values of prime land are analysed as follows:
The fair values of financial The estimated fair value flows are discounted at instruments not measured at fair of loans and advances current market rates to value were determined as follows: represents the discounted determine fair value. amount of estimated future i. Loans and advances to cash flows expected to be ii. Borrowings and Kuwait customers and staff loans: received. Expected cash Special Fund (KSF): The 137 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
interest rate charged on values of such interest estimated future cash flows borrowings held by the bearing borrowings not expected to be repaid. Bank is based on Weighted quoted in an active market Expected cash flows are Average Cost of Capital are based on discounted discounted at current (WACC) which indicates cash flows using interest market rates to determine the return the Bank’s rates for similar facilities. fair value. stakeholders expect to receive, or other bases iii. Amounts due to Bank of The significant unobservable for determining market Uganda: The estimated fair inputs used in the fair value interest rates. The interest value of amounts due to measurement categorised within rates are variable and in Bank of Uganda represent level 3 of the fair value hierarchy line with market rates for the discounted amount of are shown below: similar facilities. The fair
Significant Valuation unobservable Range (weighted technique inputs average) 2019 2018
Loans and advances DCF method WACC 13% 13% Borrowings and KSF DCF method WACC 13% 13%
7(B). Maturity Analysis of Assets and Liabilities 31 December 2019
(Current) (Non-Current) No more than Statement 12 months More than 12 of financial after the months after (Current + Non-Current) position reporting the reporting amount period period Total Assets
Cash and bank balances 21,689,075 21,689,075 - 21,689,075 Deposits held in banks 81,458,271 81,458,271 - 81,458,271
Equity investments at fair value 127,336 127,336 - 127,336
Loans and advances to customers 334,414,806 32,807,365 301,607,441 334,414,806 Staff loans and advances 3,891,810 656,688 3,235,122 3,891,810 Property and equipment 5,089,650 - 5,089,650 5,089,650 Investment Property 31,473,000 - 31,473,000 31,473,000 Current income tax assets 2,181,171 2,181,171 - 2,181,171 Other assets 5,216,463 1,008,600 4,207,863 5,216,463 Intangible assets 823,629 - 823,629 823,629
Total assets 486,365,211 139,928,506 346,436,705 486,365,211 138 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
(Current) (Non-Current) No more than Statement 12 months More than 12 of financial after the months after (Current + Non-Current) position reporting the reporting amount period period Total Liabilities
Amounts due to Bank of Uganda 16,017,692 6,493,843 9,523,849 16,017,692 Borrowings 70,541,546 6,799,811 63,741,735 70,541,546 Kuwait Special Fund 30,777,916 - 30,777,916 30,777,916 UNCDF Fund 664,670 - 664,670 664,670 Deferred income tax 5,776,986 - 5,776,986 5,776,986 liability Other liabilities 15,103,652 6,560,418 8,543,234 15,103,652
Total liabilities 138,882,462 19,854,072 119,028,390 138,882,462
31 December 2018 (Current) (Non-Current) No more than Statement 12 months More than 12 of financial after the months after (Current + Non-Current) position reporting the reporting amount period period Total Assets Cash and bank balances 30,694,491 30,694,491 - 30,694,491 Deposits held in banks 13,688,375 13,688,375 - 13,688,375 - Equity investments at fair value 225,752 225,752 225,752 Loans and advances to customers 276,693,583 30,521,111 246,172,472 276,693,583 Staff loans and advances 2,392,468 151,120 2,241,348 2,392,468 Property and equipment 5,218,471 - 5,218,471 5,218,471 Investment Property 34,796,000 - 34,796,000 34,796,000 Current income tax assets 1,243,751 1,243,751 1,243,751 Other assets 4,890,831 2,684,059 2,206,772 4,890,831 Intangible assets 273,803 - 273,803 273,803
Total assets 370,117,525 79,208,659 290,908,866 370,117,525
139 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Liabilities Amounts due to Bank of Uganda 9,290,164 3,308,182 5,981,999 9,290,181 Borrowings 57,478,060 15,287,072 42,190,988 57,478,060 Kuwait Special Fund 30,261,377 - 30,261,377 30,261,377 Deferred income tax liability 3,612,149 - 3,612,149 3,612,149 Other liabilities 15,863,968 12,412,388 3,451,580 15,863,968
Total liabilities 116,505,718 31,007,642 85,498,093 116,505,735
8. Interest And Similar Income
2019 2018 Ushs’000 Ushs’000 Interest on loans 35,723,443 30,232,426 Loan appraisal fees 1,622,086 1,595,894 Penalty fee income on loans 3,662,085 2,908,902 Interest on deposits held in banks 2,307,562 963,354 Interest on staff loans 505,034 498,243 Gross interest 43,820,210 36,198,819 Less: Transfers to Kuwait fund (Note 28) Interest earned on loans disbursed out of the fund. (1,798,431) (735,495) Interest income 42,021,779 35,463,324
The transfers to Kuwait fund represent interest income earned from loan facilities disbursed under the Kuwait Special fund and is credited to the Kuwait special fund in accordance with the Grant Agreement. Included within the various line items under interest income for the year ended 31 December 2019 is a total of Ushs 6.4 billion relating to impaired financial assets. The interest income reported above relates to financial instruments held at amortised cost only.
9. Interest Expense and Similar Charges
2019 2018 Ushs’000 Ushs’000 Interest expense 3,104,553 2,217,024
Included within the various line items under interest expense for the year ended 31 December 2019 is interest and amortised commitment fees charged on Badea Original, Badea Trade, Badea Private, IDB and AfDB lines of credit.
140 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
10. Net Foreign Exchange (Loss)/Gains
2019 2018 Ushs’000 Ushs’000 Net realised foreign exchange gains (1,423,898) (108,484) Net unrealised foreign exchange losses 1,497,292 65,414 73,394 (43,070)
The unrealised component of exchange gains arises from translation of foreign denominated transactions and revaluation of US Dollar denominated assets and liabilities to Uganda Shillings as at year end. Financial assets and liabilities denominated in foreign currencies are translated into Uganda Shillings using the rate ruling at the reporting date. The exchange rate for US Dollars to Uganda Shillings as at 31 December 2019 was 1 USD/ Ushs 3,665 (2018: 1 USD/ Ushs 3,710). 11. Other Income
2019 2018 Ushs’000 Ushs’000 Dividend income 10,595 1,969 Rental income 611,832 2,420,627 Agency fees 931,484 359,553 Other income* 508,783 927,575 2,062,694 3,709,724
*Other income above include loan recoveries and gains on disposal of assets out of property and equipment . 12. Personnel Expenses 2019 2018 Ushs’000 Ushs’000 Salaries 8,858,476 7,101,530 Service gratuity 482,800 364,913 NSSF contributions 794,556 659,848 Staff provident fund contributions 540,540 414,801 Staff welfare 699,610 631,079 11,375,982 9,172,171
141 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
13. Other Operating Expenses 2019 2018 Ushs’000 Ushs’000 Administration expenses 2,361,681 3,187,461 Rent, utilities and maintenance costs 853,850 1,551,716 Expense relating to short term leases* 905,212 - Directors’ emoluments 424,747 307,727 Other professional fees 2,800,127 815,146 Business promotions and publicity 533,120 711,576 Travel and subsistence 706,449 806,608 Auditors’ remuneration 126,236 135,776 8,711,422 7,516,010
*Expense relating to short term leases comprises the annual rental charge for premises with Pine Investments Limited. 14. Profit Before Tax Profit before tax is stated after debiting/ (crediting): 2019 2018 Ushs’000 Ushs’000 Depreciation 413,492 292,545 Amortisation of intangible assets 195,154 391,841 Directors’ emoluments 424,747 307,727 Auditors’ remuneration 126,236 135,776 Net foreign exchange gains (73,394) (43,070) Fair value loss/(gain) on investment property 3,323,000 (1,996,000)
15. Earnings Per Share 2019 2018 Net profit attributable to ordinary equity holders of the Bank (Ushs) 10,140,259,000 9,486,394,000 Weighted average number of ordinary shares in issue during the year 100,000,000 100,000,000 Basic and diluted earnings per share (Ushs) 101.40 94.86
Basic earnings per share (EPS) is calculated by dividing the net profit for the year attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the net profit attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The diluted earnings per share is the same as basic earnings per share as there were no potentially dilutive instruments outstanding at the end of the reporting period.
142 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
16. Taxation a. Income tax expense
2019 2018 Ushs’000 Ushs’000 Current income tax: Corporation tax 2,301,307 2,270,434 Rental tax 188,456 693,605 Prior year under/(over) provision corporation tax 590,394 (38,834) Prior year over provision deferred tax (7,767) - Deferred income tax charge 2,172,604 1,182,198 5,244,994 4,107,403
The tax on the Bank’s profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows: 2019 2018 Rate Ushs’000 Ushs’000 Profit before income tax 15,385,253 13,593,797 Tax calculated at the statutory rate 30% 4,615,576 4,078,139 Tax effect of: Expenses not deductible for tax purposes 0.25% 39,024 68,098 Under/(over) provision in prior year current tax 3.84% 590,394 (38,834) 34.09% 5,244,994 4,107,403 b. Income tax recoverable The movement in income tax recoverable is shown below:
2019 2018 Ushs’000 Ushs’000 At 1 January (1,243,751) (196,722) Charge for the year 2,489,763 2,964,039 Prior year under/(over) provision 590,394 (38,834) Tax paid (4,017,577) (3,972,234) At 31 December (2,181,171) (1,243,751)
143 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
17. Cash and Cash Equivalents
2019 2018 Ushs’000 Ushs’000 Short term deposits with financial institutions 21,792,506 30,797,922 ECL allowance (103,431) (103,431) 21,689,075 30,694,491
For the purposes of the statement of cash flows, cash and cash equivalents is represented by the above balances.
18. Deposits held in Banks
2019 2018 Ushs’000 Ushs’000 Time deposits 81,502,464 13,732,568 ECL allowance (44,193) (44,193) 81,458,271 13,688,375 The average effective interest rate was 10.5% for Uganda Shillings denominated investments (2018: 10%) and 1.33% for USD denominated investments (2018: 2.5%). The maturity analysis of the deposits held in banks is analysed as follows;
2019 2018 Ushs’000 Ushs’000 Amounts due before three months 28,325,000 3,824,980 Amounts due after three months 53,133,271 9,863,395 81,458,271 13,688,375
19. Equity Investments at Fair Value
Ordinary Original Fair value Fair value Shares Cost 2019 2018 Ushs’000 Ushs’000 Ushs’000 KENGEN 6,431 1,948 1,322 1,625 Uganda Clays Limited 10,147,335 538,036 96,400 192,799 The New Vision Limited 92,674 18,535 29,614 31,328 10,246,440 558,519 127,336 225,752
144 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Movement in number of shares At 1 January At 31 December Sector/Industry 2019 2019 Opening Purchases Closing Balance /(Sales) Balance KENGEN Electric power 6,431 - 6,431 Uganda Clays Limited Construction 10,147,335 - 10,147,335 Publishing, Printing, The New Vision Limited Broadcasting 92,674 - 92,674 10,246,440 - 10,246,440
At 1 January At 31 December 2018 2018 Opening Purchases Closing Balance /(Sales) Balance KENGEN Electric power 6,431 - 6,431 Uganda Clays Limited Construction 10,147,335 - 10,147,335 Publishing, Printing, The New Vision Limited Broadcasting 92,674 - 92,674 10,246,440 - 10,246,440
Movement in fair value during the year ended 31 December 2019 2019% 2018 % 2019% 2018 Opening Fair value Closing in class in class held % held Balance gain/ Balance (loss) Ushs’000 Ushs’000 Ushs’000 KENGEN 1% 1% 0.1% 0.1% 1,625 (303) 1,322 Uganda Clays Limited 85% 85% 1.1% 1.1% 192,799 (96,399) 96,400 The New Vision Limited 14% 14% 0.1% 0.1% 31,328 (1,714) 29,614 225,752 (98,416) 127,336
145 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
20. Loans and Advances
(a) Products 2019 2018 Ushs’000 Ushs’000 Long term loans 142,325,396 124,961,789 Medium term loans 143,680,471 64,830,125 Trade finance loans 29,248,635 47,297,271 Working capital loans 39,541,736 72,535,444 Gross advances 354,796,238 309,624,629 Less: Expected credit loss allowance 20(d) (20,381,432) (32,931,046) 334,414,806 276,693,583
All loans and advances above are held at amortised cost;
(b) The maturity analysis of loans and advances to customers is as follows: 2019 2018 Ushs’000 Ushs’000 Less than one year 27,613,510 28,313,019 1- 5 years 72,851,895 134,511,497 Over 5 years 233,949,401 113,869,067 334,414,806 276,693,583
146 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
(c) Gross loans to customers by sector composition:
SECTOR EXPOSURE 2019 2018 Ushs’000 %age Ushs’000 %age Agro-Processing 104,997,304 30% 98,356,212 32% Education Services 11,678,916 3% 10,767,535 3% Health Care Services 6,997,871 2% 7,659,447 2% Infrastructure 23,800,957 7% 25,223,353 8% Manufacturing 109,443,515 31% 93,944,936 30% Minerals, Oil & Gas 6,419,776 2% 5,506,375 2% Primary Agriculture 46,795,925 13% 33,748,083 11% Tourism & Hospitality 10,743,711 3% 7,986,169 3% Others - Building, Construction and Real 33,918,263 10% 26,432,519 9% Estate Grand total 354,796,238 100% 309,624,629 100%
The weighted effective interest rate on loans at 31 December 2019 was 7.88% (2018: 8.47%) for USD and 12.20% (2018: 12.26%) for Ushs.
(d) Movement in provision for impaired loans and advances 2019 2018 Ushs’000 Ushs’000 At 01 January 32,931,046 18,370,605 Adjustment on initial application of IFRS 9, inclusive of taxes - 12,791,496 Restated opening provision 32,931,046 31,162,101 Additional provisions raised during the year 1,339,977 6,481,402 Recoveries and provisions no longer required - - Written off during the year (13,889,591) (4,712,457) 20,381,432 32,931,046
(e) Net impairment loss on financial instruments
2019 2018 Ushs’000 Ushs’000 Additional provisions during the year 1,339,977 6,481,402 Provisions on off balance sheet items (Note 30) (106,972) 970,169 Provisions for low credit risk financial assets - 39,153 Recoveries and provisions no longer required - - Provision/(Recoveries) for staff loans (Note 21(c)) 75,354 (550,526) Direct write offs 95,448 970,360 Profit and loss effect 1,403,807 7,910,558
147 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
(f) Impairment and provisioning Expected Credit Losses (ECL; The Loans and advances are policies weighted average of credit losses categorized into the following with the respective risks of a grades: The Bank recognizes the default occurring as the weights. allowance for expected credit losses on all loans and advances. Probability of Default (PD); Days in Loan This relates an estimate of the Status The Bank at each reporting date, arrears category likelihood of default over a given measures the loss allowance time horizon. Stage 1 0-29 Performing for all loans and advances at Performing an amount equal to the lifetime Loss Given Default (LGD); This with expected credit losses if the relates to an estimate of the loss Stage 2 30- 89 significant credit risk on that financial arising on default. It is based increase in instrument has increased on the difference between the credit risk significantly since initial contractual cash flows due and recognition whether assessed those that the lender would Stage Non- Over 90 on an individual or collective expect to receive, including from 3: performing basis considering all reasonable any collateral. and supportable information, Exposure at Default (EAD); This Collateral held including that which is forward- is an estimate of the exposure at looking. The Bank holds collateral against a future default date, taking into loans and advances to customers Measurement of Expected Credit account expected changes in the in the form of mortgage interest Losses exposure after the reporting date, over property. Estimates of fair including repayments of principal The Bank measures the loss value are based on the value of and interest, and expected allowance on loans and advances the collateral assessed at the drawdowns on committed at an amount equal to the time of borrowing, and generally facilities. 12-month or lifetime expected are not updated except when credit losses depending on Discount Rate (df); This is used a loan is individually assessed whether or not the credit risk to discount an expected loss to as impaired. As an internal has increased significantly since a present value at the reporting requirement, the forced sale initial recognition. date using the effective interest value of the collateral security is rate (EIR) at initial recognition. over and above the amounts of (g) Impairment and provisioning loans and advances disbursed. policies Further details on how the above The forced sale value of the parameters are determined are The expected credit losses shall collateral held by the Bank for well stipulated in the Bank’s loss be determined as follows: stage 3 facilities was Ushs 743 provisioning process. ECL = PD x LGD x EAD x df. billion as at 31 December 2019 (2018: Ushs 754 billion).
148 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
21. Staff Loans and Advances
(a) Staff loans and advances 2019 2018 Ushs’000 Ushs’000 Staff loans 6,949,167 5,407,319 Provision for impairment (215,632) (808,079) Discount on staff loans marked to market (2,841,725) (2,206,772) 3,891,810 2,392,468
(b) The maturity analysis of loans to employees is as follows: 2019 2018 Ushs’000 Ushs’000 Within three months - - Between three and six months - - Over six months 3,891,810 2,392,468 3,891,810 2,392,468
Staff loans and advances are categorised as staff advances, staff personal loans and staff housing loans. Staff advances and staff personal loans are unsecured and guaranteed by future staff salaries from the Bank. The weighted effective interest rate on loans at 31 December 2019 was 8% (2018: 8%).
(c) Movement in provision for impaired staff loans and advances 2019 2018 Ushs’000 Ushs’000 At 1 January 808,079 1,293,673 Adjustment on initial application of IFRS9 - 463,145 Restated balance as at 1 January 808,079 1,756,818 Additional provisions raised during the year 75,354 - Recoveries and provisions no longer required - (550,526) Loan write- offs (667,801) (398,213) As at 31 December 215,632 808,079
22. Investment Property
2019 2018 Ushs’000 Ushs’000 At 1 January 34,796,000 32,800,000 Fair value (loss)/ gain on investment property (3,323,000) 1,996,000 At 31 December 31,473,000 34,796,000
149 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
The value of the Bank’s investment property, commercial towers, on Plot 22 Hannington Road, Kampala at 31 December 2019 has been arrived at on the basis of a valuation carried out as at 31 December 2019 by Reitis Limited (Chartered Surveyors), independent professional valuers that are not related to the Bank. Reitis Limited are members of the Uganda Institute of Professional Engineers, Land/Quantity Surveyors. The Bank applies the fair value model on its investment model in determining the property value. The Bank has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements. During the year ended 31 December 2019, the following amounts were recognised in the Bank’s profit or loss:
2019 2018 Other income Ushs’000 Ushs’000 Rental Income 611,832 2,420,627 Fair value (loss)/ gain on investment property (3,323,000) 1,996,000 (2,711,168) 4,416,627
2019 2018 Other operating costs Ushs’000 Ushs’000
Property rates 62,589 54,258 Maintenance costs 81,185 54,357 143,774 108,615
150 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 - 200 Total 413,292 287,702 (51,641) 292,545 (48,610) (394,377) (394,377) 1,143,477 1,412,330 3,943,929 5,218,471 6,496,177 1,298,234 Ushs’000 6,260,116 1,041,645 1,406,527 5,089,650 - - 406 8,600 150,751 118,633 451,737 254,796 333,104 128,009 359,631 (23,925) 556,227 224,650 - 525,636 676,387 Ushs’000 915,858 Computers (23,925) (23,925) - - - - - Motor 89,874 190,106 375,775 440,207 950,530 670,550 185,669 440,207 860,656 Vehicles (344,412) (344,412) Ushs’000 1,046,325 1,046,325
- (206) 68,137 32,906 56,998 (8,600) 311,049 679,170 (27,716) 418,086 675,760 339,325 383,091 336,435 296,079 (49,965) (49,965) (49,965) (24,685) (24,685) 289,046 Ushs’000 Furniture and fittings - - - - 81,120 27,040 27,040 - 351,234 108,160 135,200 Ushs’000 1,352,000 1,703,234 1,703,234 - 1,595,074 - Buildings 1,568,034 ------Land 947,000 Freehold - - - Ushs’000 - - 2,155,000 2,155,000 2,155,000 2,155,000 1,208,000 - Property and Equipment Property At 31 December 2018 December At 31 the year for Charge Reclassifications Disposals 2019 December At 31 AMOUNT NET CARRYING 2019 December At 31 2018 December At 31 Write off Write Reclassifications 2019 December At 31 DEPRECIATION At 1 January 2018 the year for Charge Disposals Additions At 31 December 2018 December At 31 Disposals Revaluation gains Revaluation Additions COST/VALUATION At 1 January 2018 23.
151 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
23. Property and Equipment (Continued)
The valuation of the Bank’s Land and Buildings was based on the open market value of the assets as at 31 December 2019. The revaluation is carried out every after 3 years and was last done for the year ended 31 December 2018 by East African Consulting Surveyors and Valuers- EACSV (Chartered Surveyors), independent professional valuers that are not related to the Bank. The revaluation surplus on land and buildings was recognised in other comprehensive income and credited to asset revaluation reserve in equity and is not available for distribution to the shareholders. The portion of the revaluation loss on freehold land which did not relate to a previously recognised revaluation gain, was debited to profit or loss in the year it was realised. Had the assets been carried under the cost model, the carrying amount of the freehold land would be Ushs 1,270 million and that of the buildings, Ushs 867 million. This is disclosed below;
Freehold Land Buildings Shs’000 Shs’000
Cost 1,270,000 950,000 Accumulated depreciation - (82,400) Net book amount 1,270,000 867,600
The significant unobservable inputs for land and buildings were as follows: Range of estimated value of buildings Ushs 23 billion to Ushs 34.3 billion Estimated value of bare land (1.272 acres) Ushs 2.15 billion
24. Intangible Assets
Cost 2019 2018 Ushs’000 Ushs’000 At 1 January 1,950,843 1,924,122 Additions 744,981 26,721 At 31 December 2,695,824 1,950,843
Amortisation At 1 January 1,677,040 1,285,200 Charge for the year 195,155 391,840 At 31 December 1,872,195 1,677,040
Net carrying amount At 31 December 823,629 273,803 Intangible assets comprise the initial cost of the core banking system Rubikon and other software.
152 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
25. Other Assets
2019 2018 Ushs’000 Ushs’000 Prepayments 809,861 467,644 Security deposits** 198,739 198,739 Other debtors* 1,366,138 2,017,677 Prepayment on staff loans marked to market 2,841,725 2,206,771 5,216,463 4,890,831
*The other debtors balance included deposits for un matured letters of credit amounting to Ushs 1.92 billion issued by the Bank on behalf of their customers as at 31 December 2018. There were no such deposits as at 31 December 2019. **Security deposits include a deposit to registrar of the high court in respect to UDBL vs KAI Limited case amounting to Ushs 164 million. The fair value of other assets approximates the carrying amount.
26. Amounts due to Bank of Uganda
2019 2018 Ushs’000 Ushs’000 At 1 January 9,290,181 13,055,418
Drawn down during the year 9,791,072 1,961,605 Repayments during the year (3,063,561) (5,726,842) 6,727,511 (3,765,237) At 31 December 16,017,692 9,290,181
The Agriculture Credit Fund (ACF) is a scheme set up by Government of Uganda (GoU) for supporting agricultural expansion and modernisation in partnership with commercial banks and other qualifying financial institutions collectively referred to as Participating Financial Institutions (PFIs). The Government through Bank of Uganda, refinances, at no interest, 50% of the loan amount offered to qualifying agricultural projects.
153 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
27. Borrowings
2019 2018 Ushs’000 Ushs’000 Arab Bank for Economic Development in Africa (BADEA Loan 14,265,005 0632) 15,619,780
Arab Bank for Economic Development in Africa (BADEA Trade Finance) 406,725 12,962,628 Arab Bank for Economic Development in Africa (BADEA Private 21,019,081 sector) 21,945,133 Islamic Development Bank (IDB) 7,465,463 6,950,519 African Development Bank (AfDB) 27,385,272 - 70,541,546 57,478,060
The movements in borrowings were as follows:
2019 2018 Ushs’000 Ushs’000 Balance as at 1 January 57,478,060 36,143,511 Drawdowns during the year 38,807,670 35,970,862 Interest charge 3,104,553 2,217,024 Repayments during the year (25,425,260) (14,622,944) Foreign exchange gains (3,423,477) (2,230,393) 70,541,546 57,478,060
i. BADEA Loan account. Arab Countries to UDBL’s eligible clients in the Republic of Uganda. This represents a US Dollars As at 31 December 2019, USD 4,500,000 loan from the Arab 4,336,535 had been disbursed Interest is payable on the Bank for Economic Development from the loan account. interest payment date, to BADEA in Africa (BADEA) to the on the amount disbursed and Government of the Republic of ii. BADEA Loan Trade Finance outstanding from time to time Uganda. The entire proceeds of This represents a US Dollars during each interest period, at a the loan were lent to the Bank 10,000,000 loan from the Arab rate of 6 months USD LIBOR or per a loan agreement dated Bank for Economic Development its successor rate, plus 325 basis 18th December 2009, with the in Africa (BADEA) to Uganda points. Government of Uganda as the Development Bank with As at 31 December 2019, the entire Guarantor of the loan. Government of the Republic loan amount had been disbursed Interest is payable on the loan of Uganda being the guarantor from the loan account (2018; USD on the amount outstanding at under the terms and conditions 8,316,534). a rate of 2.5% per annum. The specified in the Guarantee loan is payable in 42 semi-annual Agreement concluded between iii. BADEA Loan Private sector Badea and Republic of Uganda instalments after a 4 year a grace This represents a US Dollars dated 13th February 2018. The period calculated from the first 6,000,000 loan from the Arab loan is to be used exclusively to day of the month following the Bank for Economic Development finance import transactions from first draw down from the loan in Africa (BADEA) to Uganda
154 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
Development Bank with Development Bank Limited on Republic of Uganda, represented Government of the Republic with Government of the Republic by the Ministry of Finance. The of Uganda being the guarantor of Uganda being the guarantor agreement for the line of Credit under the terms and conditions under the terms and conditions was signed on 22nd May 2019. specified in the Guarantee specified in the Guarantee Interest is payable on the amount Agreement concluded between Agreement concluded between disbursed and outstanding from Badea and Republic of Uganda Islamic Development Bank and time to time during each interest dated 13th February 2018. The Republic of Uganda dated 18th period, at the LIBOR rate two loan is to be used solely for May 2018. (2) business days prior to the financing expenditures and For each transaction, the sale commencement of the relevant permanent working capital of price shall be determined on Interest Period plus a rate of UDBL’s eligible clients in the the basis of the capital cost eighty (80) basis points per Republic of Uganda. The loan plus a mark-up of the US dollar annum. is repayable in 16 semi-annual swap rate prevailing at the time instalments after a 2 year grace UDBL is required to repay the corresponding to the capital period. Line of Credit in full over a amortization period plus 135 period of eight (8) years after the Interest is payable on the basis points (One Hundred Thirty expiration of the two-year Grace interest payment date, to BADEA Five basis points) per annum. Period by means of sixteen (16) on the amount disbursed and The sale price shall be paid to equal and consecutive semi- outstanding from time to time the Bank within a period of up annual instalments payable on during each interest period, at a to 8 (Eight) years including a each Payment Date. The first of rate of 6 months USD LIBOR or gestation period not exceeding 2 such instalments are payable its successor rate, plus 425 basis (Two) years calculated from the on the first Payment Date points. date of first disbursement for that which immediately follows the transaction. As at 31 December 2019, USD expiration of the Grace Period. 5,999,900 had been disbursed The Bank had utilized USD It should be noted that UDBL from the loan account (2018; USD 2,450,000 by 31st December 2019. cannot re-borrow from AfDB 5,781,814). amounts repaid under the loan v. African Development Bank agreement. iv. Islamic Development Bank (AfDB) USD 15M LINE OF (IDB) CREDIT As at 31 December 2019, USD 7,430,095 had been disbursed This represents an asset line of This represents a US dollar from the loan account. financing equivalent US Dollars 15,000,000 line of Credit from 10,000,000 loan from the Islamic African Development Bank The fair values of the borrowings Development Bank to Uganda extended to Uganda Development above approximate the carrying Bank and fully guaranteed by the amounts.
28. Kuwait Special Fund
2019 2018 Ushs’000 Ushs’000 Balance as at 1 January 30,261,377 29,339,519
Agency costs (931,484) (359,553) Interest on loans disbursed out of the fund 1,798,431 735,495 Effect of foreign exchange movements (350,408) 545,916 516,539 921,858 Balance as at 31 December 30,777,916 30,261,377
155 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
This represents a grant of The purpose of the fund is to of Uganda. The weighted effective US Dollars 7 million to the finance farming and lending interest rate on loans disbursed Government of Uganda to be to small and micro business as at 31 December 2019 was 10% used in the creation of a Trust activities for the production of (2018: 8.47%). Fund in Uganda Development food and provision of related The fair value of the Kuwait Bank Limited (“the Bank”). The support services, including, special fund approximates the Bank is required to establish without being limited to, carrying amount. in its books a Special Account food processing, storage and to which the Grant as well as marketing. The Bank has treated income accruing as a result of the the grant as a liability as it investment and utilisation of the represents funds managed in grant is to be credited. trust on behalf of the Government
29. UNCDF Fund (UN Capital Development Fund)
2019 2018 Ushs’000 Ushs’000 Balance as at 1 January - -
Drawn down during the year 664,057 - Agency costs (537) - Interest on loans disbursed out of the fund 1,150 - Balance as at 31 December 2019 664,670 -
UDBL signed a memorandum per year based on the successful book. The fees are computed of Understanding with UNCDF projects financed. and charged on a monthly basis. which defines the conditions for The beneficiaries of loans from The facilities from the line of the establishment, financing and the line of credit should be small credit are charged interest at a management of disbursements and medium enterprises (SMEs) minimum rate of 10% p.a. and a to UDBL for the Support to i.e. enterprises that employ maximum of 12% p.a. Agricultural Revitalization between 5 to 100 employees and Transformation (START) UDBL is then required to with total assets between Ush facility through concessional capitalise amounts of interest 10 million but not exceeding 360 loans, including, inter alia, over and above the agency and million. Loans from the line of conditions pertaining to financial administrative fees. credit to beneficiaries must not control, reporting and auditing exceed EUR 100,000. As at 31 December 2019, Ush arrangements. The maximum 664,057,420 had been disbursed contribution of UNCDF to START As per MOU, UDBL may charge from the fund. concessional loan is up to EUR 1 % p.a. as Agency Fees on the 2,000,000 (Two million Euros) for outstanding loan book in addition The fair value of the UNCDF a period of four years. The annual to 3.8% p.a. as Administrative fund approximates the carrying instalments are EUR 500,000 Fees on the outstanding loan amount. (Five hundred thousand Euros)
156 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
30. Deferred Income Tax Liability
Deferred income tax is calculated in full, on all temporary differences under the liability method using a principal tax rate of 30% (2018: 30%). The movement in the deferred income tax liability is detailed below:
2019 2018 Ushs’000 Ushs’000 At the start of the year 3,612,149 6,016,873 Tax impact on IFRS 9 transition adjustment - (3,976,392) Restated balance as at 1 January 2019 3,612,149 2,040,481 Deferred tax charge to profit or loss 2,164,837 1,182,198 Deferred tax to other comprehensive income - 389,470 At the end of the year 5,776,986 3,612,149
Year ended 31 December 2019
*At 1 Charge/ Charge/ January (credit) to (credit) to At 31 December profit or OCI 2019 loss 2019 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Deferred income tax liabilities/ (assets) Accelerated depreciation 173,909 68,516 - 242,425 Provisions and unrealised losses (4,956,291) 3,093,221 - (1,863,070) Revaluation of property and equipment 389,470 - - 389,470 Fair value gain on investment property 8,005,061 (996,900) - 7,008,161 Net deferred income tax liability 3,612,149 2,164,837 - 5,776,986
*The balance at 1 January 2019 included the effect of initially applying IFRS 9.
Year ended 31 December 2018
*At 1 Charge/ Charge/ January (credit) to (credit) to At 31 December profit or OCI 2018 loss 2018 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Deferred income tax liabilities/ (assets) Accelerated depreciation 143,276 30,633 - 173,909 Provisions and unrealised losses (5,509,056) 552,765 - (4,956,291) Revaluation of property and equipment - - 389,470 389,470 Fair value gain on investment property 7,406,261 598,800 - 8,005,061 Net deferred income tax liability 2,040,481 1,182,198 389,470 3,612,149
157 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
31. Other Liabilities 2019 2018 Ushs’000 Ushs’000 Accrual and other liabilities 4,601,944 8,703,837 Deferred arrangement fees 3,464,534 3,451,580 Expected credit loss provision on off balance sheet items 863,197 970,169 Staff gratuity 140,381 130,358 Other creditors* 6,033,596 2,608,024 15,103,652 15,863,968
*The other creditors balance includes suspense account, trade creditors, advance rental income and accrual of India exim commitment fees payable for the quarter ended 31 December 2019.
Staff gratuity This represents outstanding/unpaid gratuity for employees on contract. The year-end accrual represents gratuity due to employees on contract at a rate of 25% (2018: 25%) of their annual gross salary.
Movement in Provisions during the year;
Description I January 2019 Movement 31 December 2019 Ushs’000 Ushs’000 Ushs’000 Staff gratuity 130,358 10,023 140,381 Leave provision 69,200 32,802 102,002 Total 199,558 42,825 242,383
32. Share Capital 2019 2018 Ushs’000 Ushs’000 Authorised: At 1 January 100,000,000 100,000,000 400 million Ordinary Shares of Ushs 1,000 each 400,000,000 - At 31 December 500,000,000 100,000,000
Issued and fully paid up: At 1 January 100,000,000 100,000,000 Issue of shares - - At 31 December 100,000,000 100,000,000
The Bank’s authorised share capital is Ushs 500 billion (2018: Ushs 100 billion) divided into 500 million shares of Ushs 1,000 each. As at 31 December 2019, the Bank had issued 100 million shares (2018: 100 million). All issued shares are fully paid up. The holders of the ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at annual and other general meetings of the company.
158 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
33. Government of Uganda Capital Contributions 2019 2018 Ushs’000 Ushs’000
At 1 January 100,171,606 52,017,077 Contributions during the year 87,730,700 48,154,529 Registration fees for 400m additional shares (4,000,000) - At 31 December 183,902,306 100,171,606
Government of the Republic of Uganda secured a loan from Kuwait fund amounting to Kuwaiti Dinars 3,000,000. The entire proceeds of the loan were passed on to the Bank for the capitalisation of the Bank per a loan agreement dated 22 December 2010.
34. Asset Revaluation Reserve 2019 2018 UShs ‘000 UShs ‘000 At 1 January 1,203,464 294,700 Revaluation surplus arising during the year - 1,298,234 Deferred tax arising on revaluation - (389,470) As at 31 December 1,203,464 1,203,464
A revaluation of the freehold land and Buildings asset categories is performed every after 3 years.The last revaluation was done for the year ended 31 December 2018. The revaluation was carried out by a professional valuer by the names of East African Consulting Surveyors and Valuers- EACSV (Chartered Surveyors), independent professional valuers that are not related to the Bank. The freehold land and buildings were revalued on the basis of depreciated replacement cost reflecting prevailing market conditions at the time of valuation.
35. Commitments
Loan Commitments To meet the financial needs of the customers, the Bank enters into various irrevocable commitments. Even though these obligations may not be recognised on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Bank.
2019 2018 Ushs’000 Ushs’000 Loans approved but not disbursed at year end 191,474,787 170,273,109
159 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
36. Contingent Liabilities
The Bank operates in a regulatory and legal environment that, by nature, has a heightened element of litigation risk inherent in its operations. As a result, the Bank is involved in various litigation, arbitration and regulatory proceedings in Uganda in the ordinary course of its business. The Bank has formal controls and policies for managing legal claims. Based on professional legal advice, the Bank provides and/or discloses amounts in accordance with its accounting policies described in Note n. At year end, the Bank had several unresolved legal claims. The Bank’s legal advisors’ opinion is that it is possible, but not probable, that the court ruling may be in favour of Plaintiff. Accordingly, no provision for any claims has been made in these financial statements. The possible outflow which could result from such litigation, based on the current status of the legal proceedings, is estimated to be no more than 6 billion (2018: Ushs 3,956 million), while the timing of the outflow is uncertain.
37. Assets Pledged As Security
As at 31 December 2019, there were no assets pledged to secure liabilities and there were no secured liabilities outstanding.
38. Related Party Transactions
The Bank is controlled by the Government of Uganda which owns 100% of the share capital of the Bank. The main transaction between the Bank and the Government of Uganda relates to capital contributions. In the normal course of business, the Bank carries out various transactions with related parties. The relevant transactions with related parties are shown below:
2019 2018 Ushs’000 Ushs’000 GoU capital contributions (note 33) 83,730,700 48,154,529 Staff loans: interest earned 505,034 498,056 Staff loans: repayments 889,807 2,497,624 Staff loans: disbursements 3,099,143 2,094,518 Outstanding balances Staff loans (note 21) 3,891,810 2,392,468
Key management compensation Salaries 1,809,735 1,215,274 NSSF Company contributions 226,217 135,193 Service gratuity 579,115 388,888 2,615,067 1,739,355 Directors’ remuneration 424,747 307,727
160 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
39. Capital Management
The primary objective of the Bank’s capital management policy is to ensure that the Bank maintains healthy capital ratios in order to support its business and to maximise shareholder value. The Bank manages its capital structure and makes adjustments to it according to changes in economic conditions and the risk characteristics of its activities. The Bank’s Board Audit and Risk committee is charged with the responsibility of assessing the adequacy of its capital and on a quarterly basis assesses the capital requirements of the Bank. The total capital of the Bank is shown in the table below:
2019 2018 Ushs ‘000 Ushs ‘000 Issued capital 100,000,000 100,000,000 Asset revaluation reserve 1,203,464 1,203,464 GOU capital contribution 183,902,306 100,171,606 Retained earnings 62,376,979 52,236,720 347,482,749 253,611,790
During the year, the Bank got additional capital contributions from Government of Uganda of Ushs 83,730,700 (2018: Ushs 48,154,529).
40. Net Cashflows from Operating Activities
2019 2018 OPERATING ACTIVITIES Ushs ‘000 Ushs ‘000
Profit before taxation 15,385,253 13,593,797 Adjustments for: Unrealised foreign exchange gain on borrowings (3,423,477) (2,230,393) Depreciation 413,492 292,545 Amortisation of intangible assets 195,155 391,840 Gain on disposal of fixed assets 3,032 (130,084) Impairment loss on financial assets 1,301,478 7,910,558 Net unrealised exchange losses/(gains) 73,394 (43,070) Fair value loss/(gain) on Investment properties 3,323,000 (1,996,000) Fair value loss on equity investments 98,416 118,173 Interest expense on borrowings 3,104,553 2,217,024 Operating profit before changes in operating assets and liabilities 20,474,296 20,124,390
161 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
41. Analysis of Changes in Financing during the Year
Reconciliation of movements of liabilities to cash flows arising from financing activities
Contribution Amounts from due to Bank Government Borrowings of Uganda of Uganda Total Ushs’000 Ushs’000 Ushs’000 Ushs’000 31 December 2019 Balance as at I January 2019 57,478,060 9,290,181 100,171,606 166,939,847 Changes in financing cash flows Proceeds from Debt 38,807,670 9,791,072 83,730,700 132,329,442 Repayments of Debt (25,425,260) (3,063,561) - (28,488,821) Total changes from financing cash flows 13,382,410 6,727,511 83,730,700 103,840,621
Other changes Interest expense 3,104,553 - - 3,104,553 Foreign exchange losses (3,423,477) - - (3,423,477)
Total liability related other changes (318,924) - - (318,924)
Balance as at 31 December 2019 70,541,546 16,017,692 183,902,306 270,461,544
31 December 2018 Balance as at I January 2018 36,143,511 13,055,418 52,017,077 101,216,006 Changes in financing cash flows Proceeds from Debt 35,970,862 1,961,605 48,154,529 86,086,996 Repayments of Debt (14,622,944) (5,726,842) - (20,349,786) Total changes from financing cash flows 21,347,918 (3,765,237) 48,154,529 65,737,210
Other changes Interest expense 2,217,024 - - 2,217,024 Foreign exchange losses (2,230,393) - - (2,230,393) Total liability related other changes (13,369) - - (13,369)
166,939,846 Balance as at 31 December 2018 57,478,060 9,290,181 100,171,606
162 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
42. Retained Earnings
2019 2018 Ushs ‘000 Ushs ‘000
At 1 January 52,236,720 52,137,057 Adjustment on initial application of IFRS 9 - (9,386,731) Restated balance at 1 January 2018 52,236,720 42,750,326 Total comprehensive income for the year 10,140,259 9,486,394 At 31 December 62,376,979 52,236,720
43. Leases
The Bank entered into a commercial lease for premises with Pine Investments Limited which expired on 31 January 2018. The contract was renewed for a further 5 years and will expire on 1 February 2023 with a renewable option. There are no restrictions placed upon the lessee by entering into this lease. The Bank intends to exit these premises by 31 December 2020 to occupy its own premises at UDB-MTN towers. The lease payments associated with the short-term lease are as follows:
2019 2018 Ushs ‘000 Ushs ‘000 Within one year 905,212 876,195 905,212 876,195
163 UGANDA DEVELOPMENT BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
NPL and additional 1.71% on the the logistical challenges of 44. Events after facilities that are already in NPL accessing raw materials. in this sector. the Reporting This sector is potential bound to suffer an impact of Ushs Period —— Manufacturing 14.6Bn with a total NPL ratio of The logistics industry faces a 3.84% of the portfolio, should In March 2020, the novel relative greater impact since circumstance persist for the next Coronavirus (COVID-19) outbreak unutilized capacity is lost and 3 months. was declared by the World Health more acutely affects logistics The Bank is seeking to find Organisation to be a pandemic companies’ bottom line. Many contingency measures with the in recognition of its rapid container shipping lines have clients in respect of access to spread across the globe, Uganda cancelled services and are inputs and related production inclusive. running fewer ships tools that are sourced through The pandemic is having Given spread of COVID-19 to new alternative suppliers and that negative economic impact transmissions areas East Asia require logistics from non- through disruption of business and the Middle East Asia, the affected jurisdictions. operations, significant increase in logistics impact on global scale The assessment of individual economic uncertainty evidenced will likely persist for months loans will also enable the Bank by more volatile asset prices and longer even as the sector establish whether or not to currency exchange rates among recovers in China. stop interest accrual, extend others. The credit risk is also Companies in this sector grace period and or have loan expected to increase. have been affected from both schedules stopped from running In the midst of this great production and demand side, for those directly affected challenge, the Bank made an most factory operations which and that can show proof that assessment to provide facts depend on supply of parts / the effect is as a direct hit and insights on the current components from China will arising from consequences of COVID-19 situation to help face production halts if they Coronavirus. decision-making. In addition, the have no inventory of parts and Overall the COVID 19 outbreak assessment set out some of those components. subsequent to 31 December challenges and how UDBL could The most impact on these 2019 yearend creates respond in order to navigate facilities in the Bank relate to uncertainties and an indirect through an uncertain situation the nature of the product (Trade impact on the key inputs used in in respect to the investment finance) and most use raw the ECL calculations especially portfolio. materials from the middle East around macro-economic variables The bank has analysed its resin which are transported by such as GDP, CBR, inflation and current loan portfolio for the key shipping lines from jurisdictions foreign exchange. The potential impacted sectors and notes the some of which are affected impact of this cannot be reliably following; areas. estimated and as such financial statements are not adjusted to These projects under reflect this impact. —— Tourism and hospitality manufacturing account for The Tourism and Hospitality an impact of at least 12.7% of sector would suffer the biggest the total portfolio. Currently hit given that the entire portfolio standing at 2.97% NPL on the is based on travel especially loan Book, a potential increase visiting tourists from Europe, of 9.73%. Asia and the United States. The total value of potential impact is —— Infrastructure Ushs 9.3 Bn for 7 projects in the This sector under the Bank’s portfolio with a 2.48% impact on portfolio will be impacted given
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