Most banks Prefer Uganda for Expansion

Uganda Proves a Suitable Banking hub in E.A

According to Standard Investment Bank’s banking sector preview, Uganda is the most preferred destination for most banks seeking to expand in the East Africa Region in 2011 compared to Kenya,.

The survey indicated 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.

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

Based on the test results, there was an advantage for banks to expand their operations across the region. It further indicated that expected returns from different regional markets vary and therefore management should make a conscious decision on which markets to operate in.

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

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

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 were attributed to the scarcity of credit from alternative sources and good source of low-cost retail deposits.

Apart from regulatory pressure in the medium term, the report indicates a bleak in ant positive foreseeable changes in this sector.

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