Finance Trust Bank: Local bank but will it hack it as a commercial bank?

26 – The number of licensed commercial banks in Uganda. Not a terrible statistic considering that only one commercial has been closed down in the last five years. The Commercial Bank of Africa (CBA) and Finance Trust Bank are the latest entrants in Uganda’s commercial banking scene. More recently, Guaranty Trust Bank (GTBank) acquired a 70percent stake in Fina Bank. (I’ll write about the prospects for GTBank in Uganda next time) 

Finance Trust Bank is not entirely new to Uganda’s banking scene. Founded in 1984, Finance Trust Bank started as a microfinance institution until December 2013. Its focus: providing affordable to mainly women. It is, rather was, not a small microfinance. It boasts of 35 branches. The transition into commercial banking means that Finance Trust Bank made the baby steps just like Centenary Bank – Uganda’s 5^th largest bank by assets – did.

FTB with its current figures of Ushs43bn in customer deposits, Ushs58bn loan book and assets of Ushs91bn, will have its work cut out in the commercial banking segment. In customer deposits, it comes at number 20. On the size of the loan book it is ranked 18, just above United Bank of Africa (UBA). With its assets of Shs91bn, we can ideally say, FTB is now Uganda’s 19^th largest bank out of 26. In 2012, the bank also recorded after tax profit of Shs1.5bn, which would have placed it in 17^th position. These numbers considering that it already has 30 branches, means it has already spent on some start-up costs and will not have to go through the cycle again. 

Prof Mutebile, BoU Governor & Irene Muloni (Chairperson FTB)  Picture from New Vision 

The broader challenge however is managing to keep its customers happy, with attractive interest rates especially for micro-lenders who have grown with it over the years. Centenary Bank has managed to do this. When Equity Bank of Kenya acquired Uganda Microfinance Limited in 2008, some branches in rural areas were closed. They were not making money for the bank. It was hemorrhaging money on administration costs. Moral of the story: Commercial banking can be similar to microfinance but it is not the same thing.   

Commercial banking comes with more demands, expectations and survival. To begin with, FTB managers have to make sure the capital base of the bank remains above Shs25bn – the regulatory requirement – and also “innovative” [find ways of being more predatory] if they’re to sustainably grow. To shore up its capital base, the bank apparently had to seek some international funders to buy some stake in the bank, but to sustain this level of capital – or more – the bank will have to make money.

It is a whole new ball game for them. What advantage does FTB have over other banks? Irene Muluni the Board Chairperson, FTB says, “Most banks are in urban areas, which gives us the opportunity to go for rural women.”

FTB is a majority Ugandan owned bank. This we should be proud of as “locally owned banks” have been in short supply. Ugandan organizations – mostly women organizations – own 55.4percent of the bank. Only Centenary Bank and Crane Bank have above this local ownership threshold. Interestingly, Annet Nakawunde Mulindwa, the FTB CEO is only the second female CEO of a commercial bank in Uganda.

With all this bloom, will FTB making formal banking more attractive. A 2013 Finiscope study on Financial Inclusion [I have a hard copy of this report if you need it] indicates that between 2009 and 2013, the percentage of adult Ugandans with access to a formal bank had declined by 1percent to 20percent. This, even after the increasing number of commercial banks in the country. The same report indicates that the percentage of Ugandans saving with a commercial bank had fallen to 19percent in 2013 from 21percent in 2009. Additionally, the number of Ugandans accessing credit in a bank rose – marginally – from 5percent in 2009 to 6percent in 2013.

FTB will however be boosted by the fact that 73percent of borrowers – both formal and informal – take up small loans of Shs500,000 and 14percent taking up about Shs1,000,000. Since the FTB’s focus will be those Ugandans in rural areas, then they could succeed. Considering its focus to encouraging women entrepreneurship and financing, it could also help increase the percentage of women with access to formal banking services.

However, when FTB was a microfinance institution, it was also in the formal banking category and the numbers as we’ve seen have been stagnant. What will it do differently? We’ll wait and see.