New Vision (Kampala)

Uganda: Dominant Banks Losing Grip - KCB

Kampala — Albert Odongo was appointed the Kenya Commercial Bank (KCB)-Uganda managing director about two months ago. Paul Busharizi and Sylvia Juuko asked him about his growth strategy for the bank.

What is your assessment of the banking industry in Uganda?

For the last three years, six new banks have come on board, bringing the number to 22. This makes it a very competitive market.

Although three dominant players control about 60% of the market, their grip is reducing. The cost of loans is much higher than the rest of the region. This is explained partly by the cost of getting the deposit.

There is tight liquidity in the market. A lot of the deposits are wholesale deposits where you pay highly. The fear of default also impacts on the pricing. However, I think there is a lot of opportunity in Uganda, especially among the unbanked population. The agriculture and SME sectors plus card products are the other areas of great opportunity.

Going forward, we are going to see a lot of competition in the area of branch openings in Kampala and up-country. New products will be launched by banks to try and get market share. Banks also have to improve their internal efficiencies because it's impacting on pricing.

What we have seen is that in some countries where competition is very stiff, it may lead to some mergers or acquisitions as the weaker players are swallowed up. For us, we are not looking at merging, but down the line we may acquire a bank that is fit for our growth strategy. But this is not in our immediate plans.

Uganda has a huge unbanked population. How do you plan to rope them in, especially in the context of our huge informal sector?

One of the ways is finding a way of interfacing with our customers. Traditional bank branches are very expensive to put up and run. Technology enables you to bank more people without increasing your branch presence.

Customers can be reached through ATMs, Internet and mobile banking, contact centres and card products. This is a cheaper way of reaching a wider group of people.

Where does Uganda fit in KCB's overall strategy?

The overall strategy is to be the leading financial services provider in the region. Our strategy has been to grow from the centre in Kenya and mushrooming to the outside with the region as the epicenter.

So, Uganda fits into the strategy because it is a key trade partner in the region. Uganda is also the gateway into central Africa, the DRC, Rwanda and Southern Sudan.

How are you positioning yourself for oil?

Oil will have a generalised impact on the economy and this depends on how the oil sector is run. There will be servicing the industry because it's a big industry.

The whole Hoima area and other areas will grow. There will be asset-based finance for transporters who will be servicing the industry. There will be the Government expenditure, which will be fueled by oil income. It will have biggest impact to the economy.

What progress has Kenya Commercial Bank made in this market?

We started during CHOGM in November 2007. We have made great progress since inception because our strategy has been to cover the whole country.

The northern corridor, all the way to Southern Sudan, has been covered. The southern connection with Rwanda has also been achieved through the branch in Mbarara. We have 14 branches in the country.

In terms of real growth, from December 2009 to June, our customer deposits grew by 58%, from sh69b to sh109b. We have grown our customer numbers from 26,000 to 40,000, which is a 53% growth.

What is driving this growth?

We are riding on our key strength; regional presence. With a big network of 212 branches and 730 ATMs, this is our key selling point. We are also a one-bank platform across the region. We have the largest balance sheet in the region of sh5,900b. Cash remittances are also our strong point.

How big is your loan book?

The loan book is growing, but we are not aggressive because we are looking at the risk aspect of it. We are growing the corporate loan book, personal loans, which is a strong growth area. Small-and-medium enterprises (SMEs) is also a key focus for us. More recently, backed by the Central Bank and the Government, is the agriculture lending, which we are beginning to look into.

What is your take on the sentiments that card products will never take off?

Using card products as a way of deepening of the financial sector has been the traditional path of Western markets. There are various card products that can work here. The most basic ones are ATMs, which enable clients to access banks outside banking hours. Increasingly, features are added to make it a debit card to allow you access when you travel.

Then you need to have outlets to use them like hotels, supermarkets and fuel stations. That's when you get cards introduced into the sector and growing. You can then ultimately move to credit cards.

KCB recently had a rights issue in which Ksh12.4b was raised. How will Ugandan customers benefit?

One of the reasons why we have not offered mortgage lending at KCB-Uganda is because most of our deposits are short-term funds.

With the Ksh12.4b, we are exploring the possibility of getting a line from our parent company to enable us introduce a mortgage product in Uganda next year.

How do you plan to expand amid competition?

We will use areas where we have a comparative advantage, which is the regional reach. The strength of our balance sheet, where we can lend to a single borrower more money than our balance sheet in Uganda would allow us.

We would syndicate and leverage on the balance sheet of the group. We have a wide range of products like mortgages and card products. These are areas we want to leverage on.

For the past three years, we have been setting up and growing our infrastructure and putting team in place, the internal processes. Now we are entering a second phase of business growth.

We are targeting a profit next year and not this year because, normally, that is how it goes, the start-up costs for a green field operation is high.

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