Banks merge branches to cut costs

Stanbic Bank Uganda head offices at Crested Towers in Kampala. The bank, and others, have merged some branches in a move that experts say is meant to do away with non-performing branches. FILE PHOTO

Kampala-In 2009, mobile money services were rolled out in the country by MTN, and other telecom companies soon followed suite registering 1000 subscribers.

Five years down the road, mobile money subscribers have reached 19.5 million today.

This coupled with the evolution of new technologies and recent developments like agency banking has out-competed the banks in their previous space causing them to rethink their operational strategies, most embracing mobile banking.

This week alone, two banks, Stanbic Bank Uganda and Equity Bank issued notices in the press notifying the public about the closure and merger of some branches as well as relocation and phasing out of some customer service points.

Equity Bank, with a network of 28 branches in the country, has transferred Masindi Branch to Hoima Branch, Tororo Branch to Mbale Branch and Jinja Road branch in Kampala to Oasis Branch.
Stanbic Bank also merged Bushenyi Branch with Ishaka Branch to create a new Ishaka Branch.

Katwe Branch was merged with Aponye Mall Branch in Kampala to create a new Aponye Branch.

The mergers, according to Mr Brian Mukisa, the head of marketing and communications at Stanbic Bank Uganda, are “… a normal business exercise to consolidate our existing branch network and utilise new service channels to serve our customers better.”

With a network of 79 branches countrywide, Mr Mukisa said the bank has significantly invested in new ATMs where customers can withdraw and also make deposits with instant feedback to their accounts.

However, according to experts, the move is intended to cut operational costs as well as close down non-performing branches.
Mr Sydney Asubo, the executive director Financial Intelligence Authority, said it is a normal occurrence for banks to merge or close branches, and that there is no cause for the customers to worry.

Mr Fred Muhumuza, an economist and senior researcher at the ministry of Finance, Planning and Economic Development, also holds this view saying the scale-back on their networks could be to reduce on high operation costs.

He said in mid 2000s, many banks embarked on an expansion drive largely driven by expectations.

However, after operation in these areas, they realised that their targets and projections are not being met.
“,” he said.

He further said that on a review basis, banks make a decision to scale back since globally the economy has not grown as had been expected so many banks realise that the inflows coming in are not enough to run the branches.

Dr Muhumuza, however, states that mergers and withdrawals of branches by banks should not be looked at as a negative occurrence but “… it is for the survival of the banks because we need them capitalised and sound. “

He says this only reflects negatively about the economy. “It means the economy has not performed well, not growing as fast as expected and there are no business opportunities for these banks to ride on.”

Impact on economy
Mr Muhumuza said banks are the barometers or thermometers of the economy.

“In case of any problem with the economy, banks are usually the first ones to detect. In some cases, banks can hide the health of the economy because they can easily write off some non-performing loans, which hides the bad health of the economy,” Mr Muhumuza added.

The recent developments in the financial industry such as the passing of the agency banking act means that banks no longer need to have a physical branch but an agent who can act on behalf of the bank.

With the passing of the agency banking legislation, Mr Mukisa says, this will enhance financial inclusion, as banking agents are expected to act as delivery channels and to offer banking services in a cost effective manner. This, he said, “will add several hundreds of new customers touch points over night.”

As we go in to a closed period awaiting audited results for 2015, commercial banks had a good performance in 2014, according to the financials published last year for the year 2014.

The banks recorded a 25 per cent increase in profitability to Shs536b in 2014. This was a positive trend as compared to 2013 where banks experienced a 22 per cent reduction as a result of reduced lending and a fall in income from loans.

In 2014, banks lent more, earning more from loans as well as growing customer deposits, which grew by 18 per cent to Shs13 trillion.

Banking industry robust
Mr Fabian Kasi, the chairman Uganda Bankers Association, whose membership comprises 25 commercial banks and one development bank, the Uganda Development Bank (UDB) in a recent interview, said “Uganda’s banking sector today is robust and is in pretty good shape.”

“According to the December 2014 financial figures, (2015 financial figures are yet to be released) most banks registered positive results in addition to significant growth in assets, deposits and loans.

For instance, total bank assets grew 13 per cent from Shs17.3 trillion in December 2013 to Shs19.6 trillion in December 2014.
During the same period, non-performing loans stood at 4.1 per cent, a decline from 5.6 per cent the previous year.

Quick facts
Stanbic: It is the largest bank in Uganda with a Shs2 trillion of customer deposits. It has a loan book of Shs1.6trillion with an asset size of about Shs3.5 trillion. In 2014 the bank made profit of Shs135b up from Shs101b in 2013.
Equity: It is the 14th largest bank in Uganda with an asset size of Shs370 billion. Its net profit fell to Shs2b in 2014 from Shs6.6b in 2013.
Bankable population: Commercial banks hold around six million accounts shared among 25 institutions in the country.
Mobile money: According to Uganda Communications Commission, in five years, mobile money accounts have grown from 10,000 to around 19.5 million, with transactions valued at Shs24 trillion.