20 April 2017

Uganda: Interswitch Benefits From Crane Bank's Network

The takeover of Uganda's troubled Crane Bank by DFCU Bank in January has indirectly boosted Interswitch -- the local banking switch operator -- through addition of 55 automated teller machines and a million customers.

The acquisition promises higher incomes in future from transaction fees for the two players.

DFCU Bank is one of the biggest banks on the Interswitch platform, which is controlled by Interswitch Ltd of Nigeria. Centenary Bank, the other dominant lender connected to the Interswitch platform, operates 96 ATMs and has grown its customer base to more than 1.3 million people to date.

The interbank platform has so far signed up 11 commercial banks, two credit institutions and one microfinance institution. Crane Bank was acquired by DFCU Bank three months ago following the central Bank's decision to terminate its statutory management role and transfer a significant portion of its assets and liabilities to the listed lender.

Crane Bank had been put under statutory management in October last year by the Bank of Uganda on account of severely depleted capital levels, surging credit default rates and falling corporate governance standards.

Its credit default ratio, for instance, stood at 30 per cent at the end of September 2016, according to BoU records, with the largest defaulting borrowers pegged to the real estate and construction sectors.

Prior to the takeover, Crane Bank had nearly one million customers, 46 branches and 96 ATMs. In comparison, DFCU had a customer base of about 200,000 people, more than 50 branches and 45 ATMs before the acquisition.

However, the integration of Crane Bank's operations onto the DFCU platform has seen its ATM network expand from 45 to 100 service locations spread countrywide while its branch network is estimated at 70 outlets. This in turn, will expand Interswitch's ATM network to more than 375 service points this year, with about 11 ATMs owned by the switch operator. Significant expansion of Interswitch's footprint is expected to witness more service points located across the country and increase transaction volumes and fees earned by DFCU Bank and the switch operator.

Previous negotiations undertaken by Interswitch Ltd and leading banks that included Stanbic Bank Uganda, Standard Chartered Bank Uganda and Barclays Bank Uganda, which exited the platform in 2007, did not bear fruit.

Failure to attract more than one large bank depressed growth of transaction volumes and fees registered on the Interswitch platform in the past, leading to years of loss making, industry experts say.Though DFCU Bank and Interswitch were yet to confirm projected growth in transaction volumes and fees following the Crane Bank acquisition, the integration of former Crane Bank customers could take longer in light of large scale card swapping planned in coming months. Under the integration strategy, former Crane Bank customers will be allowed to exchange old Visa Cards with new chip and pin Visa cards before achieving full adoption on the DFCU platform."Our ATM network has increased from 45 ATMs to 100 ATMs after the takeover of Crane Bank. The entire integration process for the former Crane Bank customers will take six to12 months," said William Sekabembe, executive director at DFCU Bank

Uganda

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