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UGANDA: Electronic banking starts to bite
Many jobs at stake as commercial banks close, merge branches.
Top banks in Uganda are considering closing several branches countrywide, a development that could render dozens of employees redundant. Stanbic and Equity Bank have been the first to announce the decision to close of some branches in a move aimed cutting costs and lift profitability in a challenging economic environment.
Stanbic Bank, which with its 76 branches is the Uganda’s biggest bank by assets, has announced plans to merge the Katwe Branch with the Aponye branch in Kampala. Bushenyi and Ishaka branches are also to be merged into one branch at Ishaka, effective next month.
The bank will also close five customer service points (CSPs) - Abim, Sironko, Dokolo, Yumbe, and Kyenjojo. Customers there will instead be served at Kotido, Mbale, and Lira, Koboko, and Fort Portal branches, respectively.
Similarly, Equity Bank intends to close its Masindi branch and shift operations to the Hoima branch. The operations of Tororo branch will be shifted to Mbale branch, while Jinja Road branch in Kampala will shift to Oasis branch. Given that on average a bank branch is manned by at least 15 staff excluding drivers, cleaners and guards, the closure of one branch could potentially affect 20 jobs.
Brian Mukisa, the head of marketing at Stanbic Bank, told The Independent that the decision is aimed at ensuring that the bank concentrates in locations that are more profitable. He explained that Stanbic Bank Uganda has invested significantly in new ATMs and mobile banking services, which are sufficient to enable a customer to operate without a physical branch. “With these channels, there is limited use of a physical branch,” Mukisa said.Stanbic Bank unveiled its mobile banking solution dubbed ‘Stanbic on the Go’ last year, enabling its customers make bank transactions anywhere via mobile phone, computer or any other internet-enabled device.
Mukisa said the bank is also looking at rolling out agency banking and thus extending its services closer to the people – thus enhancing financial inclusion.
However, the bank’s executives remained guarded on how many employees would lose jobs and how much they would save.
The development comes at a time when the country’s banks are expected to report subdued growth and lower profits in the upcoming reporting season due to reduced appetite for credit in the second half of the year as a result of high interest rates, according to Crested Capital, a financial advisory firm. Interest rates soared to highs of 24.54% last November. A strenuous economic environment in the first half of 2015, a depreciating local currency and high inflation risk that saw the Central bank tighten monetary policy.
BoU Director for Research Adam Mugume told The Independent that with the passing of the Financial Institutions (Amendment) Bill 2015 on Jan.07, which allows agency banking, banks will not need to have many physical branches. He said the profitability of the banking industry globally has slackened reflecting partly the adoption of Basel III, a comprehensive set of reform measures to strengthen the regulation, supervision and risk management of the banking sector.
“Under this regulatory environment, banks must hold more capital and liquidity than before,” Mugume told The Independent in an email interview.
As such, Mugume said a combination of higher capital and liquidity requirements to fulfill the Basel III regulatory requirements, declining profitability, increasing non-performing loans reflecting weak economic activity, and rising overhead costs dictate that banks must find ways of cutting costs. Executives in the financial industry who spoke to The Independent argued that as online and mobile banking continue to open up markets and inspire products that were previously out of reach, banks in Uganda are facing a rapidly changing and thus the need for them to be innovative. “As banks embrace new technologies and transition to offer online services, it is definitely not going to be ‘brick and mortar’ anymore,” said Stephen Kaboyo, the managing partner at Alpha Capital Partners, a financial advisory firm. “This shift will push banks to migrate many of their branch functionalities online as they seek out new ways to remain relevant and profitable.”
Kaboyo said the country’s commercial banks have to respond to non-bank competition in mobile finance in addition to adjusting to changes in consumer sentiment and behavior as costs and convenience remain at the heart of electronic money transactions.
So far, Bank of Africa and Centenary Bank have already rolled out mobile banking products dubbed Mobile Wallet and CenteMobile, respectively, and more banks are looking forward to unveil similar products.
Commercial Bank Africa (CBA) has applied for an approval from the BOU to introduce an innovative mobile banking product in partnership with MTN Uganda, a telecom firm, to enable people save, earn interest and borrow money using their mobile phones.
Uganda has in the past seven years witnessed an increase in the entry of non-traditional banking players since the launch of the mobile money in 2009, threatening the operations of traditional banks.
According to BoU’s latest data, mobile money subscribers grew by about 3.5 million to 21.1 million as of December last year compared to the previous year.
On the other hand, the total number of bank accounts holders at the country’s 25 commercial banks and other small financial deposit institutions stands at 13% of the country’s 40 million people.
SOURCE:THE INDEPENDENT
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