New kids in banking

Industry experts foresee a competitive, innovative and technology driven sector  

Kampala, Uganda | JULIUS BUSINGE | Rivalry in Uganda’s banking sector is expected to tighten following the central bank’s decision to grant two entities licenses to start banking business.

These are Afriland First Bank Uganda Limited, a Cameroonian based bank with operation in seven other African countries – mainly in West Africa, and the Opportunity Bank that previously traded as a Credit Institution Tier II in Uganda.

Bank of Uganda Governor, Emmanuel Tumusiime-Mutebile said in a statement that the two entities were granted licences last month.

The two entities come at a time the banking sector is recording improved performance after nearly five years of mixed performance. The non-performing loans had taken toll on the industry that slowed profit growth starting with 2012/2013.

They also coincide with the sector embracing agent banking, islamic banking and bancasurance to extend financial services closer to the customers.

Analysts say it is too early to predict on whether the new entrants will make cash. Several banks have in the past few years failed to live up to their expectations forcing the central bank to close them down. These include; Crane Bank, National Bank of Commerce and Global Trust Bank.

Opportunity Bank’s Executive Director, Tineyi Mawocha, had in an earlier interview with The Independent said that the decision for the entity to upgrade to a fully-fledged commercial bank was customer driven.

He said some of their customers especially the SMEs kept on asking for different products such as current accounts, foreign currency and other trade finance services.

“The good thing is that we are operating above the required capital which is currently around Shs28billion,” he said.  Tier I banks are required to raise a minimum capital of Shs25bn to be granted a license.

Mawocha said the bank’s largest customer base is group clients, also known as micro enterprises.

He said the group clients are growing so rapidly to become SMEs – a situation that the bank feels should grow with them rather than give them to other players. Currently, Opportunity Bank has 23 branches countrywide.

New players are welcome

Joseph Kibuuka, the former head of investment banking at Crested Capital told The Independent that the coming of new players is good for filling the unbanked gap.

“I don’t believe our market is saturated,” he said. “The more the players that come to the market the better to actually help in financial inclusion of our population,” Kibuuka added. He said all banks can make money in this market because they know their niche.

However, he said the performance of the economy going forward and the high levels of credit analysis done by banks before giving out loans will determine how profitable the new players and the sector will be going forward.

“…it is the same market that players are trading in…same people being targeted and same problems being recycled,” he said.

He also said the success of the sector will be driven by how it is regulated. For now, he said, Bank of Uganda is doing a good job basing on the fact that no customer/depositor has ever complained about losing their money whenever a bank is closed.

From a fiscal perspective, Kibuuka said the government should work towards reducing further the cost of doing business to be able to support growth of companies that are borrowing from banks.