East African Business Week (Kampala)
Edris Kisambira
26 November 2007
Kampala — Housing Finance Company of Uganda (HFCU), the oldest mortgage bank is moving into commercial banking, a sector set to become even more competitive with three other new players at different stages of entering the sector.
HFCU however will enter the sector in a healthy situation, with a big war chest containing some Ush61 billion (US$36 million) in new capital.
HFCU, 50% owned by the National Social Security Fund (NSSF) has operated in Uganda's mortgage business for the last 40 years. The government of Uganda controls 49% of the bank while National Housing & Construction Company (NH&CC) owns 1%.
The company, which holds a 70% share of the mortgage market, has received its commercial banking license from the Bank of Uganda (BoU) and will open to the public as a mortgage and commercial bank at the beginning of January 2008.
Mr. Nicholas J Okwir, the chief executive officer HFCU told East African Business Week in an interview last week that the bank's hand has been pushed into commercial banking to satisfy the needs of their current customers.
"Many of our current customers want to keep track of their payments for construction services particularly those doing mortgages. And we don't offer demand deposits so these will help them as a one-stop centre where they can monitor their businesses, particularly in construction," Okwir said.
He said the shareholders have already injected funds into the company in readiness for its move into commercial banking. "Today, we are the most highly capitalized company in the banking sector. Our paid up capital is Ush61 billion," Okwir said.
Government he said paid up its Ush30 billion in new capital in June this year while the NSSF paid up its Ush20.5 billion to bring it to Ush30.5 at the end of October this year. "So in terms of shareholder contribution, we are ready. It is now implementation and getting the necessary personnel and equipment in place before we really open up to the public," Okwir said.
Today, clients of HFCU clients suffer the inconvenience going through another commercial bank before they can cash their cheques. Okwir said those clients continue doing their business with another bank, which means HFCU, has been losing out.
"We lose track of our customers, the credit history is given to another commercial bank. So going commercial will in itself help us have a credit history of our own customers," Okwir said.
The bank's new status will be such that it interacts with its customers throughout their transactions.
'We will continue that relationship with them and keep their repayment schedules, which we will monitor and maybe encourage them to do other business with us," Okwir said.
HFCU's new status also means that its operations will now come under far greater scrutiny by BoU, the industry regulators. HFCU has been the non-commercial banking institution that is supervised by BoU.
As a mortgage bank, HFCU could only operate a savings account, which meant the bank only had access to minimum depositors, who are characterized by small amounts not to mention the fact that in Uganda, savings are low. But even as a savings provider alone, the bank has grown it to Ush58 billion ($33.9 million), growing at an average of 25% per year.
Under its savings service, the bank was majorly used by salary earners, who usually draw out the money almost immediately - an impediment to growing deposits.
Okwir said the bank will be in a position to keep its existing customers with the new products they intend to bring on board, as well as attract new customers.
"The added value we will get as a result is we will become members of the clearing house at BoU instead of going through a third party bank, which is now an impediment to us and our customers," Okwir explained.
HFCU's mortgage portfolio currently stands at Ush120 billion (about $70 million) and has been growing at an average rate of 38% per annum. Okwir said that in 2002, it grew at a rate of 45% per annum, which resulted into the bank revising its strategic business plan.
The benefits of HFCU becoming a commercial bank will be varied and will include the opportunity to go to the clearinghouse, the bank will be able to participate in forex dealings and business finance and trade.
The bank, which today employs 120 staff, operates three branches, all within Kampala but this is set to change.
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