UBA customer deposits down 55% as clients eye higher-yielding investments
United Bank of Africa (UBA) customer deposits have dropped by more than half as customers withdrew their savings from the lender to seek higher-yielding investment alternatives.
UBA’s third quarter financial statements show the bank’s customer deposits dropped by 55 per cent to Sh1.5 billion. The banking industry’s total deposit base rose by 7.1 per cent at the time, from Sh1.4 trillion in June 2011 to Sh1.5 trillion in September 2011.
Managing director of the bank, Muyiwa Akinyemi, attributed the drop to customers’ preference for higher yielding investment alternatives. "The changes are in line with market dynamics as market rates fluctuated and we took decisions that any bank would take depending on its appetite for high cost of funds," said Mr Akinyemi.
The bank’s capital adequacy ratios rose to 56.2 per cent from four per cent following the drop in customer deposits by Sh1.9 billion. Its loan book shrank by 11.1 per cent to Sh551 million.
UBA has the highest liquidity ratio in the industry at 97 per cent, 77 per cent higher than the statutory minimum.
"Our high liquidity is a deliberate strategy," said Mr Akinyemi. Investment institutions have been holding high liquidity as cash becomes more expensive in a tight monetary environment. UBA losses dropped to Sh77.4 million from Sh92.5 million in the nine months to September last year.
Depositors have been pushing banks to increase their deposit rates so as to shield their investments against high inflation and to match the current government security returns.
The inflation rate rose for the thirteenth month in a row to 19.72 per cent in November slashing the real return of money. The government’s increased borrowing from the domestic market has pushed the bench mark 91-day Treasury bills yields from 1.9 per cent in May 2009 to high of 18.5 per cent last week, forcing bankers to match it in an attempt to encourage large depositors to deposit their money with them instead of lending to the State.
Fund managers have been operating call deposit accounts as opposed to fixed accounts so as to ease withdrawals to take advantage of better investment opportunities. Cost of alternative funds besides the customer deposits, which are short-term loans from other banks or Central Bank, have also risen-- pushing competition for the customer deposits a notch higher.
"Banks may decide to let the deposits go if they feel it will not be profitable," said Andre DeSimone, chief executive officer of Kestrel Capital.
This article was originally posted on Africa Banking Network
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