Most banks prefer Uganda for expansion

October 29, 2012
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, NAIROBI, Kenya, Oct 29 – Uganda was the most preferred destination for most banks willing to expand in the East Africa Region in 2011 compared to Kenya, according to Standard Investment Bank’s banking sector preview.

The survey dubbed, ‘Growing Influence of Regional Operations’ showed that Kenya was still weighed down by slow Growth Domestic Product (GDP) expansion, high volatility in inflation and high average debt-to-GDP ratio compared to Uganda.

In four East African Community countries, the survey also ranked Rwanda as the best country for any bank to venture into first, when setting up regional operations followed by Kenya, Uganda then Tanzania.

“Based on our test results, there is merit for banks to expand operations across the region. Also expected returns from different regional markets vary, therefore management should make a conscious decision on which markets to operate in,” the report stated.

The report also showed that most of the banks used the strategy of setting up of subdiaries first while venturing into new markets in the region.

By 2011 Kenyan banks dominated the region, with 10 banks operating 179 branches. Kenya Commercial Bank commands the largest regional footprint of 29.6 percent, while other five unlisted banks controlled 19.6 percent.

“From our discussions with management of the various banks within the region, it remains clear the regional expansion bug will be around for a while. What remain unclear though are the criteria used in deciding if to go regional or not, which markets to enter and mode of entry,” said the report.

The bank says the market fragmentation across the region is bound to increase as more banks opt to set up new subsidiaries.

Meanwhile, in 2011 average Interest Rate Spread across the four countries stood at 12.7 percent with a high of 18.3 percent in Uganda and a low of 9.3 percent in Rwanda.

The high spreads are attributed to scarcity of credit from alternative sources and good source of low-cost retail deposits.

“Apart from regulatory pressure in the medium term, we do not foresee any significant changes in the sector that would lead to drastic drop in spreads,”

In 2011 Rwanda’s GDP growth went up by 7.4 percent, Uganda 7.4 percent, Tanzania 6.8percent and Kenya 4.3percent.

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