The Observer (Kampala)

12 August 2014

Uganda: Prospects Abound As Ugandan Banks Swim With Kenya's Sharks

Bankers and economic analysts have said there was still room for growth for Ugandan banks to match their Kenyan counterparts even though the gap between the two continues to widen.

A report released last week by the international credit rating firm, Moody's, noted that Kenyan banks were more likely to benefit from the regional integration than any other partner states.

In a report titled, East African Community: Credit Issues for Banks, the firm pointed out that Kenyan banks had been able to position themselves in order to benefit from the trade within the region. Particularly, the firm said, Kenyan banks had been able to spread their branch networks in almost all partner states.

"Of the five [Uganda, Kenya, Rwanda, Burundi and Tanzania] systems, the large Kenyan banks are best positioned to benefit from growth opportunities, given their dominant, cross-border networks and advanced mobile technology capabilities," said Constantinos Kypreos, Moody's Vice President and Senior Credit Officer, in a statement on the firm's website.

NC bank, KCB and Equity bank are some of the Kenyan banks spreading throughout the region. It is no wonder that Equity bank Uganda and KCB Uganda were the only two banks that recorded a profit increase of more than 200 per cent due to financing cross-border trade. Fabian Kasi, Centenary bank's managing directors, told The Observer they are aware of the integration opportunities, and that the bank is strategising to tap into them.

"And that's why we have correspondence banks within the region. So, even if we don't have our physical presence there, we are working," Kasi said. "We are joining Interswitch; all these are options."

Last year, the region's banking sector assets reached $54 billion, according to Moody's report, with Kenyan banks accounting for more than half of that. While the general banking sector in the region is predicted to grow, Kenyan banks have been a lot more aggressive. For instance, when South Sudan had just become independent, the KCB was the first to go there.

And it's not only Kenyan banks spreading throughout the region; the country's retail stores such as Uchumi, Nakumatt and Tuskys are carrying out a similar trend, boosting each other's businesses. Dr Fred Muhumuza, a senior economist at KPMG, said some of the Kenyan banks were global players and they were too big to compare with Uganda's.

He cited Equity bank, which was only started in Kenya, but has global investors. He added that even the bigger banks located in Uganda coordinate their regional businesses from Nairobi.

"The best go to Kenya," he said.

Muhumuza says local banks still have room to tap into the opportunities that the region presents. He said "there is still room for growth." He said banks like Centenary, who target the low-end market, can still expand to other markets, possibly in areas like Rwanda.

But Isaac Shinyekwa, a research fellow on integration at Makerere-based EPRC, thinks some banks here might need to rebrand in order to appeal to the elitist club of people who actually do much of the trade in the region.

Cross-border trade

Stephen Kaboyo, the managing director of Alpha Capital, says the future is in financing cross-border trade.

"When you see in Sudan, Tanzania, and Rwanda, the KCBs already have a presence there. This is long-term and forward-looking."

Kaboyo is optimistic, though.

"There is more room for growth. As development takes shape, getting into other partner states' markets will be much easier and local banks might not even need even licences to get there," Kaboyo said.

Crane bank proprietor, Sudhir Ruparelia, revealed last year that they were planning to start operations in Rwanda this year. The bank notes that they have undertaken all the requirements and are just waiting for the license.

"All we need to do is first cover at least 90 per cent of the home market, and that will be done this year," he told journalist at the opening of the Ntinda branch last year.

Ruparelia added that the bank also planned to move into South Sudan and the Democratic Republic of Congo. EAC growth is projected at 6.6 per cent this year and 6.7 per cent in 2015. Uganda, in particular, is projected to grow at 6.2 per cent.

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