Sanjay Rughani, the Managing Director at Standard Chartered Bank Uganda
Standard Chartered PLC, the parent company of Standard Chartered (StanChart) Bank Uganda announced a set of actions to concentrate resources where they “have the most distinctive client proposition, in order to better support our clients.”
Under this arrangement, the bank intends to explore the sale of its Wealth and Retail Banking (WRB) business in Uganda, Botswana, and Zambia.
The bank pledged to continue to have a strong corporate and investment banking presence in Uganda following the sale of “our WRB business, which is expected to take 18-24 months and is subject to regulatory approval.”
Understanding StanChart’s plans to exit wealth and retail banking
With its bubbly slogan; ‘Here for Good’, Standard Chartered Bank Uganda Limited has been operating in the Ugandan market for over 112 years, having opened its doors on 12th August 1912, making it the longest established Commercial Bank in the country.
However, analysts say this latest move maybe the beginning of the end of the long-serving financial institution that is one of the Domestic Systemically Important Banks.
10 years ago, StanChart was recording impressive growth and threatening to overtake the leading banks. However, its growth stagnated and has since been among the top five banks in a market of 25 commercial banks.
However, its plans to sell its retail and wealth business in Uganda didn’t come as a shocker for those who follow banking sector closely.
A few years ago, StanChart closed a number of branches in its downsizing strategy. The bank said it will mainly serve its customers through online and agent banking.
As of today, StanChart operates only three branches-all based in Kampala. It operates 32 ATM machines located at 24 ATM sites, 10 Cash Deposit Machines and offer Agent Banking with over 20,000 locations countrywide.
However, with the sale of its Retail and Wealth business, more branches will be closed as well as ATMs as the most affected will be individuals and Small business owners (SMEs).
StanChart’s performance has also been inconsistent for the last five years or so. StanChart is the 8th most profitable bank in Uganda as of 31st December 2023. Under the leadership of Sanjay Rughani as Managing Director, StanChart made a net profit of Shs80bn in 2023, up from Shs44.23bn in 2022.
The loans advanced to customers reduced by 8.2% to Shs1.12 trillion in 2023, from Shs1.22 trillion in 2022, making it the 6th largest lender in the country.
However, it’s the 4th largest bank in Uganda by customer deposits. Its deposits increased slightly from Shs2.51 trillion in 2022 to Shs2.544 trillion in 2023.
In terms of assets, Standard Chartered is still the 4th largest bank in Uganda with an asset base of Shs3.65 trillion as of 2023, having reduced by 3.69% from Shs3.79 trillion in 2022.
Market too small
Dr. Fred Muhumuza, an economist and analyst, says global brands are having a change in business models as they look at better markets. He pointed out at Barclays that exited African market in 2019. It was taken over by South African based lender, Absa.
Muhumuza says many banks are competing for a small bankable population, making it difficult to make meaningful profits for shareholders. He says banks are operating in a tough environment whereby they finance companies/ businesses that supply government, but they end up becoming distressed over delayed payments.
He says while StanChart wants to focus on corporate and investment banking, its success will depend on many factors.
“A lot of Non-Performing Loans (NPLs) are a result of domestic arrears government owes to big borrowers (local companies),” he says, adding: “Some of their clients have been suppliers of government and delayed payments have not spared them.”
In Uganda, domestic arrears have been increasing at an alarming rate, and are a threat to the country’s economy.
Domestic arrears increased from Shs8 trillion in 2022 to over Shs10 trillion in 2023. In FY 2024/25, Government provided Shs200 billion only to clear outstanding arrears.
Domestic arrears are the total value of unpaid bills for goods, services, and works at the end of a financial year.
Muhumuza further tells Business Focus in an exclusive interview that the IT industry has also changed banking.
“You don’t need physical presence to serve customers even in remote areas. Even small banks can compete as they can serve Ugandans online,” he says, adding that many Ugandans especially in rural areas are being served by SACCOs and microfinance institutions, thus giving commercial banks tough times to penetrate the lower-market segment.
“The market is still too small for 25 banks,” he says.
Importantly, the retail market that is characterized by largely SMEs has its own challenges; many SMEs don’t keep records and therefore, lending to them becomes challenging.
Muhumuza however says StanChart’s planned sale of its Wealth and Retail business doesn’t necessary mean that the Ugandan economy is weak but there are other better markets that the bank wants to prioritize by focusing their resources and efforts there.
“This move won’t affect the customers and the banking sector. The customers will be served by other banks,” he says.
Analysts say although the banking industry will also not be interrupted, capital will flow from Uganda to other markets where returns are high.
How small is Uganda’s banking sector?
As analysts have argued that Uganda’s banking sector is too small to accommodate 25 banks, Business Focus tried to examine the truths and myths behind this assertion with figures indicating that although the sector has many players, Uganda’s financial sector is dominated by a few banks.
Banks made a profit of Shs1.42 trillion in 2023, up from a net profit of Shs1.28 trillion in 2022. However, the results show that the top five most profitable banks control a commanding 74.76% of the market under the profits category. This means the rest of the banks (20) share a paltry 25.24% of the market under the profits category.
Further analysis shows that the top 10 most profitable banks control 91.74% of the industry market share under the profit category. This means 15 banks share only 8.26% of the market under this category.
Total industry assets increased by 342% to Shs49.51 trillion in 2023, up from Shs45.45 trillion recorded in 2022.
The results show that the top 10 banks control 80.98% of the total industry assets, leaving 15 banks to share a paltry 19.02%.
According to the analyzed financial statements, industry customer deposits increased to Shs33.92 trillion in 2023, up from Shs31.53 trillion in 2022.
The top five banks control 55.35% of the industry market share under the customer deposits category, while the top 10 largest banks by customer deposits control 81.66% of the industry market under this category, leaving 15 banks to share 18.34%.
The results further show that commercial banks extended loans worth Shs20.47 trillion to customers in 2023, up from Shs19.06 trillion in 2022.
The top five biggest lenders control 59.1% of the market share under the loans category. The top 10 biggest lenders control a commanding 82.9% of the market share under the loans category. This leaves the rest of the banks (10) to share only 17.1%.
The 2024 National Population & Housing Census report shows that 42% of Uganda’s population aged 16 and above save money using different mechanisms while 58 percent don’t save at all. According to the report, only 7% use commercial banks for saving.
At the regional level, within the East African Community (EAC), StanChart has performed well in Kenya and Tanzania compared to Uganda. For example, while it made a net profit of Shs80bn in 2023 in Uganda, StanChart Kenya’s Profit after tax increased 15% to KShs13.8B (UShs393bn) in 2023.
StanChart assets in Kenya stand at KShs429bn (UShs12.18 trillion) compared to Shs3.65 trillion in Uganda.
An ex-banker who spoke to Business Focus on condition of anonymity, painted a murky picture for Uganda’s economy and banking sector. He says although StanChart will continue offering corporate and investment banking, it will eventually exit the Ugandan market.
“You want to invest in economies with strong systems. Recent events at Band of Uganda and the banking sector like the reported fake notes found with one of the banks show how weak the monetary system is,” the ex-banker said. He says that “no money lender can genuinely survive in this economy because of unfair competition.”
Who’ll will purchase StanChart’s Retail and Wealth business? We’ll keep you posted!
