Kenyan banks find niche in Ugandan market

Monday December 10 2007

By Emmanuel Were

FOR a while, Fina Bank has been looking for a buy-out in Uganda, looking to replicate its entry into Rwanda where it bought a state-owned bank three years ago.

Its quest has been watched closely because of recent failure by the region's biggest bank, KCB, to enter the Ugandan market through a buy-out. KCB was outbid by rivals in the acquisition of DFCU, Nile Bank and another bank that was not identified. Nile Bank was later acquired by Barclays Plc.

Another Kenyan company, APA Insurance, abandoned efforts to enter Uganda after it failed to acquire NIC Uganda. The firm was later bought by IGI Insurance of Nigeria.

Analysts have been looking to see whether Fina Bank could break the jinx and make it third time lucky for Kenyan firms seeking to acquire assets in Uganda, the country's biggest trading partner.

That question has now been answered in the negative as it emerges Fina Bank will start operations in the country, building its presence from the scratch after failing to find a suitable match.

"We had looked to buy something, but there is nothing. We have to start from scratch," Fina Bank Group chief executive officer, Mr Frank Griffiths, told Business Daily. Mr Griffiths is the former Managing Director of Barclays Bank Uganda. He said the bank had this week received approval from regulators [Bank of Uganda] to start banking operations. The bank now intends to set shop there early next year.

The move is expected to prop its strategy to become a bank focused on serving the increasing Small and Medium Enterprise (SME) sector across the East African region.

Having spent six years working in Uganda, Mr Griffiths believes Fina has an edge over other banks presently operating in the country in the targeted SME segment.

Kenyan financial and investment services providers are pursuing a regional expansion strategy as the local market becomes increasingly competitive. In October, KCB acquired approvals from the Bank of Uganda to start operations and the first branch is expected to open its doors anytime from January.  Dyer & Blair Investment Bank recently  announced it had set up a fully fledged subsidiary in Kampala.

Mr Griffiths said the bank prefers going out to engage potential clients, who are identified through word-of- mouth and referrals by existing customers.
"This yields customer loyalty and repeat businesses," Mr Griffiths said.

Under this strategy, relationship managers regularly go out and advise SMEs on solutions to their financial needs over a period of three months. Though the strategy is expensive, Mr Griffiths says it has rewards. "By getting to know them well and understand their business and cash flow, we can safely offer them tailor- made services," he said.

This method will be tested amply in a new market where there may be not enough voices to pass the bank's message around. Starting from the scratch also has its challenges, including learning the market and establishing clout in business circles.

It is these teething problems that firms try to avoid in new markets through acquisitions, which come with significant goodwill in the market, a ready customer base and human resource capacity to build upon. Failure by Kenyan companies to enter Uganda as going concerns denies them these benefits and also amplifies establishment costs.

In the case of Fina Bank, which currently has branches in Nairobi, Mombasa, Eldoret and Nakuru, the establishment will cost up to $3 million (Sh200 million, at current exchange rates).

According to Central Bank of Kenya's Bank Supervision annual report for last year, Fina Bank is ranked as the 19th largest bank in terms of total net asset, which stood at Sh6.5 billion compared to the largest bank, Barclays Bank of Kenya whose assets are worth Sh118 billion. 

For the nine months to September 2007, the bank's after tax profits rose to Sh56 million compared to Sh47 million for the same period last year.
The bank made Sh147 million profit before tax in 2006.

Business Daily