Bank Of India Uganda head office in Kampala. The bank is considering
exiting Ugandan market for Asian and European markets. PHOTO | MORGAN
MBABAZI | NATION
Bank of India Uganda Ltd is contemplating exiting Uganda as its
headquarters in Indian shifts focus to Asian and European markets.
Experts
say the proposed exit could affect investor confidence in Ugandan banks
and stimulate acquisition appetite among other Indian banks.
The
Asian lender has a market share of less than four per cent. It resumed
operations in Uganda about six years ago, after a 40-year break caused
by the expulsion of Asian businessmen during the Idi Amin regime.
The
bank closed its local operations in 1972 and sold its assets to Bank of
Baroda, another Indian government-controlled lender.
Whereas
Bank of India recorded profits of around Ush800 million ($217,822) in
2012 after the relaunch of Ugandan operations that year and has remained
profitable since then, bank insiders say that the parent company’s
decision to shift focus to Asian and European markets has triggered
withdrawal plans from small economies.
Expansion in Asian and European economies apparently promises higher returns for the parent company.
Risk management
Observers also
cite recent changes in Basel Three standards — a set of global rules
that guide banks on risk management, for exit of some large,
international banks from developing markets.
Under
these rules, big global banks that own significant shares of more than
50 per cent in subsidiaries located in emerging economies are required
to maintain capital reserves of 100 per cent of the total capital held
by those subsidiaries.
Confronted with tighter capital
requirements, certain global banks such as Barclays PLC of the United
Kingdom have recently scaled down their shareholding in African and
Middle Eastern subsidiaries in an attempt to reduce their capital
maintenance costs.
Barclays PLC completed the sale of
its stake in Barclays Africa Group from 62 per cent to 14.8 per cent
last year, a transaction that has led to a rebranding process of various
Barclays African operations to Absa Group that is to be finalised by
end of 2020.
Barclays Africa Group is controlled by Absa Ltd, a South African commercial bank.
“The
parent company feels Asia and the European markets bear stronger growth
opportunities than some developing economies like Uganda.
“We
have prime borrowers that have received long-term facilities from us
which are supported by a $20 million credit window provided by the Group
and we are cautious about transferring their loan facilities to another
bank.
“They would need a solid commercial bank that
can maintain those facilities without suffering liquidity shocks. If the
exit plan is endorsed by the Group and the Central Bank, it might take
less than six months to find a local bank willing to buy our assets and
liabilities and also provide reliable services to our existing
customers,” said a senior executive at Bank of India Uganda Ltd, who
requested anonymity, citing confidentiality rules.
Takeover
Though
Bank of Uganda has dismissed speculation about a statutory takeover
that circulated on social media last month, it did not, however, offer
details on Bank of India’s future in the local market.
“We
are yet to confirm that development and cannot issue an official
position until the bank’s directors have notified us,”noted Hannington
Wasswa, BOU’s director for commercial banking.
“The
looming exit of Bank of India from Uganda reflects badly on our
industry. Such a development will force foreign players like HSBC that
have shown interest in this market to think again after seeing a big
banking peer moving out of the same market... argued Kavuma Simon Peter,
chief finance officer at Citi Bank Uganda Ltd.
No comments :
Post a Comment