Frank Sserwaniko
17 December 2008
Kampala — Bank of Uganda figures indicate bank branches have almost doubled in the last one year - from 180 to 300.
Walking down a crowded street in downtown Kampala, you are likely to be waved to stop a dozen times. Not by desperate shoe hawkers or miserable beggars, but by smiling customer service officers, working for the big banks in town.
They want you to learn about their saving plans, loan products and above all, open an account. The account opening is concluded under a tent, and for some banks, without any initial cash deposit.
"It is a striking contrast of how things were five years ago," remarks Paul Mayambala a businessman in Kampala. "I remember being turned away from a bank in December 2001 when I was trying to open an account, because one of my passport photos had a scratch. It was painful after a long queue."
Today, Mayambala would have no long queue to worry about. The recent lifting of the moratorium on new banks has seen seven new banks getting licences this year and existing banks rapidly expanding.
"What we are seeing was waiting to happen several years ago. With the lifting of the moratorium, banks would be fighting for a very small market if they concentrated on the up market and corporate clientele," says Davis Gathara an investment broker with MBEA brokerage services.
He says while there has been rapid increase in the number of banks, the corporate clientele is not growing at the same rate. "They are going down market to tap into SMEs and the middle class which are growing faster," he said. Bank sources estimate that there are eight million unbanked individuals and enterprises in need of services. Among the newly licenced banks, six have already opened their doors. Kenya Commercial Bank and Fina Bank are from Kenya, while United Bank of Africa and Global Trust are from Nigeria. Ecobank has a presence in 25 central and western African countries and is expanding to eastern and southern Africa. Housing Finance, formerly a credit institution also opened as a commercial bank in January.
Bank of Uganda figures indicate that bank branches have almost doubled in the last one year - from 180 to 300, while ATM locations have mushroomed too.
Barclays, Crane, dfcu and Kenya Commercial Bank are some of the financial institutions that have gone into overdrive, opening new branches and ATM locations. They have also deployed officers on streets recruiting account holders from under tents.
THE BANKS IN BUSINESS
dfcu Bank
Since January 2008, dfcu has opened eight new branches, three of them in downtown Kampala - Owino, Market Street and Kikuubo. This increases its branch network to 20.
Juma Kisaame the Managing Director says their target is 50 branches in the next five years.
On the street account opening exercise the bank has been conducting since mid-this year, Kisaame said: "This is one way to reach out to the people. We conducted a survey and found that customers are looking for convenience and many SMEs have no time to walk to the banking halls."
He also says it is a way to increase financial awareness. "Banking has to be demystified so we have to explain products and increase awareness," Kisaame said in an interview this week.
Crane Bank
Crane Bank, which already has seven branches, has added three ATM locations this year. The Managing Director A. R. Kalan told Business Vision they are set to open four new branches in Banda and Kireka suburbs of Kampala as well as Kabale and Mbarara in western Uganda. The bank plans to add another three branches by mid- next year to be located in Arua, Soroti and Hoima - doubling its branch network in one year.
"At Crane Bank, we have always believed in taking services closer to the people. This is one way to do this, and the response has been overwhelming," Kalan said of the street account opening campaign. He says the people often referred to as small are never too small because, "with time they will grow Crane Bank would rather grow with them." Crane also talks of launching a credit card and venturing into mortgage financing early next year.
Barclays Bank
A decade ago, Barclays Bank closed some of its branches outside Kampala and observers thought it as retreating. However, Barclays is now expanding aggressively after it acquired the 16-branch Nile Bank last year. Its total branch network has now grown to 53. Branch expansion and automatic teller machine locations are targeting high population city suburbs and upcountry. Barclays has also repositioned itself as a bank for Small and Medium enterprises.
South Africa's Stanbic bank - the industry leader in both assets and profits - has not had trouble opening new branches since it acquired Uganda Commercial Bank and its 65 branches six years ago. The bank has however added five new branches, bringing the total number to 72. It is too rapidly expanding its ATM locations to the city suburbs and upcountry.
Centenary Bank
Centenary has 28 branches and 54 ATM locations spread in different parts of the country. It faces a big challenge now that other banks are going for its microfinance niche.
Kenya's Equity Bank, which recently bought Uganda Microfinance Limited, one of the country's largest micro finance deposit-taking institutions, could become Centenary Bank's biggest competitor. Equity bank has over two million account holders in Kenya representing 41% of all bank accounts. Its Managing Director James Mwangi said earlier this year that they would replicate the bank's microfinance model in Uganda.
The bank is adding 15 ATMs in 2008 bringing the total to 25. The country's oldest bank, has recently focused on expanding its retail interests, especially after it lost huge development agency accounts following a ruling that such accounts should be held by the Central Bank. Standard Chartered added three branches in 2007, and like others, it is looking for growth through automated ATMs.
Kenya Commercial Bank
Kenya Commercial Bank (KCB) one of the new banks has already shown its teeth, opening three branches in six months, and enticing new customers with offers to finance 80% of share purchases in the Kenya Safaricom initial public offering last March. KCB is also positioning itself as a regional bank with branches in southern Sudan and Tanzania and planning to open in Rwanda and Burundi.
With all the other banks busy launching new products, opening branches and wooing customers - some by visiting their homes, hair solons and leisure sports - the stage seems set for the highest competition ever witnessed on Uganda's banking scene.
The star performance of banks in 2007 painted a picture of an attractive sector with good returns. The lifting of the moratorium therefore had to attract several new players to the industry. In 2007, bank deposits and loans soared. Finance Minister Ezra Suruma in this year's budget speech announced that bank deposits grew 26% while loans increased 49% in the year up to March 2008.
The market segments - corporate, small and medium-sized enterprise (SME) and consumer - seem to be no more. Among the big four banks, for example, Stanbic, Standard Chartered and Barclays have made inroads into the retail market. It is only Citibank that seems to maintain its exclusively corporate clientele.
The cost and diversity of lending products is, however, moving at a lower pace. Most banks still insist of collateral. Although unsecured lending is also growing, it predominantly targets salary earners working with reputable agencies. There are a few innovations targeting SMEs such as dfcu's Business Growth loan, but the challenge is the standards of book keeping and cash flow management by most enterprises.
"Most SME's are still new and have challenges of book keeping.
However, with the Credit Reference Bureau in place, it will be possible to share information on credit history. We believe once this becomes fully operational it will minimise risk and impact on flexibility in lending," says Kisaame.
More banks are also targeting the mortgage industry. Housing Finance had long been the only provider of mortgage finance, targeting the middle and low end. In 2003, one of its shareholders, DFCU, which had also started as a development financier, broke off to start a rival mortgage business that offered speedier processing.
Today, according to managing director Nicholas Okwir, Housing Finance has at least 60% of the mortgage market and has helped bring interest rates down from 20% to 16%.
Dfcu Bank, the second place player in the mortgage business recently introduced the land loan - to enable low income earners buy land on credit, a relationship that could lead them to mortgage finance on completion of payment.
The rapid bank expansion however comes with high costs.
Barclays after-tax profits for example fell 57% to Ush6.5bn in 2007 largely due to the costs of acquiring Nile, merging the IT platforms of the two banks and building new branches.
With 77% of total banking assets shared among biggest six banks - Stanbic, Standard Chartered, Barclays, Citibank, Crane and Centenary at the end of 2007, it remains to be seen whether new competition will change the balance of fortunes.
Some market participants and analysts see further mergers and acquisitions as inevitable.
"In the long run, you will see consolidation," Stanbic's Managing Director Phillip Odera was quoted by the Banker magazine as saying recently, "There are small players I don't see around for long as the cost of participating is too high."
Gathara agrees. " The expansion is costly and at the end of the day, banks may soon realise that the transactions, especially upcountry do not bring in profits as soon. Yet they want the benefits of expansion to survive in the market. In the next two years, I therefore see smaller banks merging with big players to survive."
Banking sources estimate the cost of establishing a new branch fully equipped with an ATM at between US$500,000 to $1.5m depending on whether premises are rented or bought. To establish an ATM location alone, the cost varies between $100,000 - $150,000.
However, dfcu's Kisaame says the market is still big as long as banks can curve out a niche and increase efficiency. "The market is not saturated. If you take the example of our new branches in Owino and Nakivubo, there is great reaponse. I wouldn't see market saturation in the near future. For now, the industry focus should be on how to grow the market jointly by addressing key issues access, creating confidence and improving service."
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