Expansion into East Africa, a boon for banks, stakeholders and the region’s economy

By Staff Writer

Kumaran-Pather CEO IM Bank Uganda

Over the past two years, the financial services sector has weathered a variety of changes directly stemming from the impact of the Covid 19 pandemic across the region.

On one hand, the implications of measures aimed at limiting physical interactions decimated the number of bricks and mortar branches, which in turn led to the banks needing to restructure their human resource needs. On the other hand, the growth of internet-based banking has accelerated the uptake of digital services by customers looking to stay safe as they move their money. Banks also invested heavily in cybersecurity and risk mitigation strategies in a bid to protect their customers’ assets. 

According to the Bank of Uganda Financial Stability Review report. The financial sector in Uganda has also remained relatively stable and resilient despite the shocks and disruptions occasioned by the Covid-19 pandemic. This has been largely due to the Bank of Uganda (BOU) Covid-19 policy support measures that have been implemented.

Regionally, despite the effect of the COVID-19 pandemic, Kenya’s banking sector remained stable and agile in 2020. According to the Central Bank of Kenya’s Bank Supervision annual report (2020), gross loans and advances increased by 7.2 per cent from Ksh.2.7 trillion in December 2019 to Ksh.2.9 trillion in December 2020. This was despite restrictions on movement through lockdowns and curfew hours. The success of digitalization in Kenya has led to progress on financial inclusion, which in turn has benefited the banking sector.

This resilience is providing a strong base from which banks across the region are moving aggressively to acquire interests across their borders in a bid to grow their holdings. This can be attributed to the potential that East African markets have in terms of their profitability. 

The Central Bank of Kenya’s Bank Supervision annual report (2020), which highlights the structure of the Kenyan banking sector and banking sector performance, notes that Rwanda continues to dominate the East African region as the most profitable banking market for Kenyan lenders for the third year in a row, signaling increased investment into one of Africa’s fastest-growing economies. Rwanda is followed closely by Uganda.

I&M Group Plc had long viewed the Uganda market as the missing piece to their consolidation across East Africa. The acquisition of a 90% stake in Uganda’s Orient Bank has how given the final piece of the regional puzzle to the I&M group. With the launch of I&M Uganda in November 2021, the group now has a strong presence across Kenya , Uganda, Tanzania, Rwanda and Mauritius.

East Africa’s banking sector is projected to remain stable over the short to medium term, as banks continue to assess their business models with a key emphasis on agility. As a result, those with interest in the sector can expect to see more mergers and acquisitions within the region. This will allow banks to pursue attractive regional expansion opportunities in order to enhance their regional participation, accelerate their growth and maintain sustainable long-term African success in line with their expansion and growth strategies. They will be able to meet the needs of more customers and roll out more diversified product offerings to their benefit.

Aside from the benefit to the banks themselves, there is the added bonus that is enhanced financial inclusion owing to the investment in digital strategies by the larger banks entering the new markets. 

Additionally, a larger bank entering a new market holds a greater capacity and need for new staff thus new jobs are created in the economy. This of course can be a contributor to the overall improvement in the quality of life at least for the staff who work for said banks.

The entry of I&M in Uganda is certainly not only a boost to Uganda’s banking scene but also the entire regions banking sector. We are seeing customers being set up to engage in cross border trade opportunities leveraging in the bank’s solid network of subsidiaries in Kenya, Uganda, Tanzania Rwanda and Mauritius.  The acquisition of Orient bank is an added asset to the I&M Group which builds confidence to the banks investor community as it communicates the banks potential to grow in other markets.

Regional expansions are necessary, the benefits far much outweigh the drawbacks, more banks should therefore consider acquisitions and or mergers in order to build a solid financial institution that will power the region’s economic growth and create more opportunities for its stakeholders. 

Kumaran Pather, CEO, I&M Bank Uganda 

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