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Here for good. Not. Standard Chartered (Stanchart) bank’s promise; ‘here for good’ is under threat.

The bank is said to be restructuring and consolidating to focus on transactional banking, securities and financial market services.

At the beginning of 2017, Standard Chartered Bank exited the retail banking in Thailand. Standard Chartered Bank Thai was bought off by TISCO Bank Pcl and its sister outfit, All-Ways Co. The decision was occasioned by high non-performing assets, bank’s inability to grow retail customer base so as to achieve profit margins and the new global trend of nationalism.

Not every business excels in foreign markets. Global operations seem to prefer international banks. But in retail banking, dealing with small households and SMEs, global banks are usually mistaken. Locals are increasingly preferring to bank with indigenous banks. Bangkok Bank for example, Thailand’s largest bank by branch network and total assets, was founded by Chin Sophonpanich, a Thai. Krungthai Bank is owned by the Thai government with a controlling majority of 56%. Siam Commercial Bank too, Thailand’s fourth largest bank by total assets, deposits and loans. The banking sector structure is dominated by local banks. And this is the trend globally. International banks are finding it difficult to outcompete locals.

Global brands tend to overestimate the ease of replicating cross-selling models that have worked elsewhere. Business stretching across several countries are even harder to run and manage. Legal and compliance costs compile up. Foreign banks carry heavier regulatory burdens. Stanchart is waking up to the tough reality. In Asia, the bank has been exiting retail and mass market banking to focus on transactional, securities and financial markets. The financial technology (fintech) disruption in the sector has been a key strategic driver. Clear choices of what where to play and how to play in the banking field must be made before it is too late.

As Stanchart takes such good strategic decisions, are they in tandem with their long held credo and promise of “Here for good?”

In Uganda, Stanchart is one of the top four banks, competing head to head with Stanbic Bank for the number one spot. Since 2016, Stanchart has been consolidating by reducing her branches and Automatic Teller Machine network in preference to digital delivery channels specifically online and mobile banking. As a way of not testing the depth of the river with both legs, the bank started by closing off branches around the city. The first to go was the Ntinda branch and ATM. At the time, these were said not to be breaking even in terms of traffic and transactions. To operate an ATM in a particular location, a bank needs a minimum number of transactions so that transactional fees and charges generate revenues enough to cover the total money costs of the ATM. A deeper analysis of Stanchart ATM and branch network revealed that the transactions and traffic were inadequate to cover the costs of operation. And they had to find a strategic approach to downsizing without causing much public excitement or the lack of it. And on that front, they achieved it. In 2017, the arrival of a new CEO, Albert R. Saltson has seen a fast track in breaking the brick and motor structures in favour of digital banking. Stanchart is clearly optimizing her Internet and mobile banking infrastructure as a source of competitive edge.

A changing landscape

New developments in the local banking sector cannot be ignored.

Parliament passed the amended 2004 Financial Institutions Bill in January 2016, which opened the way for Islamic banking, agency banking and Bancassurance. These developments are aimed at fast tracking financial inclusion. Government has increased the capital reserve requirement to a 2.5% conservation buffer; and between 1 to 3.5% for domestic systematically important banks (DSIBs). The International Financial Reporting Standard Nine (IFRS9) will have an estimated impact on the capital adequacy ratio (CAR) of banks at 0.5%-1%. This is a tough call for many local banks as it puts pressure on liquidity.

Bank of Uganda has been put on the spot light following the sudden exit of Crane bank. In response, the bank issued an instruction circular EDS.306.2 directing all supervised financial institutions (SFIs) to engage their external auditors to audit IT systems of the respective SFIs as part of the annual audit and that the cost of such exercise to be met by the SFI. Considering that most of the big four audit firms that audit banks in Uganda lack local staff who are knowledgeable in advanced data analytics and IT security assurance to meet the minimum requirements as stated by the regulator (BOU), the audit fee might increase by over US $90,000 or more since the international audit firms will transport consultants from their affiliate offices abroad to come and be part of the audits. This increased cost will impact on banks profitability. Then the pressures on interest rate capping? Will BOU bend to the public outcry of the high cost of credit and cap interest rates? If this does happen, will it have retrospective impact on the current outstanding loans? Considering the unexpected government directives and changes, is this something to prepare for in advance.

Government, especially, of NRM ilk is so sensitive when it comes to issues that affect the local person. Retail banking and mass market products are mainly consumed by such a segment. Will the interest rate cap come with other conditions that could mean a retrospective impact in which the asset and portfolio impairment could lead to disaster? As Crane Bank was taken over, BOU was swearing behind closed doors of the increased supervision and tougher rules. Already, BOU issued instruction circular to the effect international banks like Barclays, Stanchart, etc to host their core banking applications in Uganda. Banks must spend a lot of money either in implementing virtualization or setting up local data centres that are adequately serviced for assured security (confidentiality, integrity and availability) of customer details.

And above all, the amount of money transacted through mobile money in the year 2016 was reported at Ugx. 43.9 trillion or US $1.362 billion (up 35% year on year) and an estimated 51% of the 2015/16 Gross Domestic Product (GDP). There are about 20.4 million (51% of the country’s population) registered customers on mobile money. These developments cannot be strategically ignored by any top honcho.

For Stanchart, this has meant a digital first agenda where all investments considered brick and motor are shed off in favour of Internet or mobile banking. Of course for some of the bank’s customers in the affected areas, it has been tough especially if you wish to withdraw a lot of money above the ATM limit. You have to travel to the nearest branch which is now very far. A customer in Ntinda explained that they have to ply to Kisementi at Acacia Mall. The branch closing spree saw the bank close Gulu, Mbarara and many other branches upcountry.

Where are the bank’s role model entreprenuers financed? Stanchart has been doing the same in Kenya. By the end of July 2017, Stanchart Kenya is said to have closed four branches in Bungoma, Kisii, Kitengela and Warwick (Nairobi).

These kinds of closures threatens the bank’s timelines promise of here for good. Is Stanchart really here for good?

Stanchart, where are the profits?

One would say that the bank is trying to shed off unnecessary baggage to face the competition with agility. And they point to the success of Citi bank. It boasts of only one head office and branch, but Citi has for long been one of the most profitable bank.

The battle for the top spot has always been among Stanbic and Stanchart. The financial story gets really interesting when a closer look at each of the bank’s profit after tax margins are examined. Since 2007, Stanbic Bank has been generating significant profits. For Financial Years FY’07, FY’08 and FY’09, Stanbic’s profit grew by Ugx. 11bn, Ugx. 18bn and Ugx. 20bn higher than that of Standchart. Standchart only managed to respond to Stanbic’s dominance in 2010 and 2012 with just Ugx. 1b profit margin. In 2015, Stanchart’s profitability was badly hit. The bank registered Ugx28billion in the year 2015, a 75% decline up from Ugx. 114billion in 2014. The decline, according to bank sources was as a result of massive none performing assets (NPAs), driven by a big provision of a book cleaning exercise – thereby shedding off Ugx. 112billion on NPAs. Globally, Stanchart has tried to clean their books so as to report a clear picture amid tightened supervision and a transparent financial reporting regime. But a new threat is on the horizon.

Centenary bank, a truly local bank owned by the Catholic Church, has been growing organically thanks to a strong customer base and ready market. Since 2010, Centenary bank undertook a deliberate strategy to optimize all Christians, especially Catholics in the country to attract them to open accounts with the bank. It was common to here announcements at the end of the mass calling for the faithful’s to pass by the Centenary bank tent to know more about the bank as well as open bank accounts. Such outreach initiatives helped grow the bank’s customer base, loan portfolio and non-interest income. The bank has registered steady growth in profit after interest year on year since 2010. Already, it is difficult for Stanchart to compete with Stanbic and Centenary bank on the basis of branch network.

Now Stanchart is responding by consolidating and cutting costs. The inconvenience for some clients is high. But that is one of the anticipated costs of any new business initiatives. The bank’s exit from the Thailand market has created a lot of inconvenience to traders with interests in that market. One of the traders who just returned from Thailand explained how being a customer of Stanchart was very inconveniencing. Aware of the risks of the cash economy, he packed the Stanchart visa debit card. However, this time, his card did not help. After five withdrawals, the card was blocked with error messages of insufficient funds. It became too difficult to transact. Since Stanchart has already exited the Thailand market it was difficult to lift the freeze. Imagine how bad it feels to have money on your account but cannot access it.

The opt was to transact via the bank’s mobile app. This was the most frustrating. To pay any vendor, you must first “Add a New Beneficiary”. After updating all the details, the bank sends a onetime password (OTP) which you must receive on your phone. Given the very high costs of roaming in Thailand, the business man had left his registered SIM card in Kampala and therefore it was not possible to receive the onetime password. That is how frustrating technology can get.

And then one wonders, is Stanchart’s promise of here for good still valid?

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