19 March 2018

Uganda: Bank of India Could Exit Ugandan Market

Bank of India Uganda Ltd is contemplating exiting Uganda as its headquarters in India shifts focus to Asian and European markets.

Experts say the proposed exit could affect investor confidence in Ugandan banks and stimulate acquisition appetite among other Indian banks.

The Asian lender has a market share of less than four per cent. It resumed operations in Uganda about six years ago, after a 40-year break caused by the expulsion of Asian businessmen during the Idi Amin regime.

The bank closed its local operations in 1972 and sold its assets to Bank of Baroda, another Indian government-controlled lender.

Whereas Bank of India recorded profits of around Ush800 million ($217,822) in 2012 after the relaunch of Ugandan operations that year and has remained profitable since then, bank insiders say that the parent company's decision to shift focus to Asian and European markets has triggered withdrawal plans from small economies.

Expansion in Asian and European economies apparently promises higher returns for the parent company.

Risk management

Observers also cite recent changes in Basel Three standards -- a set of global rules that guide banks on risk management, for exit of some large, international banks from developing markets.

Under these rules, big global banks that own significant shares of more than 50 per cent in subsidiaries located in emerging economies are required to maintain capital reserves of 100 per cent of the total capital held by those subsidiaries.

Confronted with tighter capital requirements, certain global banks such as Barclays PLC of the United Kingdom have recently scaled down their shareholding in African and Middle Eastern subsidiaries in an attempt to reduce their capital maintenance costs.

Barclays PLC completed the sale of its stake in Barclays Africa Group from 62 per cent to 14.8 per cent last year, a transaction that has led to a rebranding process of various Barclays African operations to Absa Group that is to be finalised by end of 2020.

Barclays Africa Group is controlled by Absa Ltd, a South African commercial bank.

"The parent company feels Asia and the European markets bear stronger growth opportunities than some developing economies like Uganda.

"We have prime borrowers that have received long-term facilities from us which are supported by a $20 million credit window provided by the Group and we are cautious about transferring their loan facilities to another bank.

"They would need a solid commercial bank that can maintain those facilities without suffering liquidity shocks. If the exit plan is endorsed by the Group and the Central Bank, it might take less than six months to find a local bank willing to buy our assets and liabilities and also provide reliable services to our existing customers," said a senior executive at Bank of India Uganda Ltd, who requested anonymity, citing confidentiality rules.

Takeover

Though Bank of Uganda has dismissed speculation about a statutory takeover that circulated on social media last month, it did not, however, offer details on Bank of India's future in the local market.

"We are yet to confirm that development and cannot issue an official position until the bank's directors have notified us,"noted Hannington Wasswa, BOU's director for commercial banking.

"The looming exit of Bank of India from Uganda reflects badly on our industry. Such a development will force foreign players like HSBC that have shown interest in this market to think again after seeing a big banking peer moving out of the same market... argued Kavuma Simon Peter, chief finance officer at Citi Bank Uganda Ltd.

Uganda

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