Global Trust’s Collapse Mirrors the Hardships of West African Banks [opinion]

Truth be told, Global Trust bank had been battling problems right from the start, up until the central bank decided to shut it down last week.

When the Nigerian bank made its entry into Uganda by buying Commercial Microfinance Limited (CMF) way back in 2008 – a deal that was shrouded in secrecy – rumours of whether the transaction was worth it started doing the rounds.

CMF, partly owned by top city businessmen Bob Kabonero of Kampala Casino and Patrick Bitature of Simba Telecom, had been making losses year in, year out when the Nigerians finally showed interest. The credit institution, then the second largest in the country, was also saddled with bad debts, while the amount of credit it was willing to offer customers had tanked. Some shareholders, it appeared, wanted out.

To be fair to GTB, the allure of mergers and acquisitions in Uganda’s banking industry back then was g enough. Between 2006 and 2009, Barclays bank had taken over Nile bank, Kenya’s Equity bank had snatched Uganda Microfinance Limited, ABC bank from Kenya was targeting Capital Finance Company Limited, a credit institution, while United Bank of Africa was desperately looking for an institution to buy.

There was another catch. The majority shareholders of GTB – Nigeria’s Industrial and General Insurance (IGI) – were also the owners of National Insurance Corporation (NIC). The Nigerians thought the synergies between their insurance firm and the bank would work in favour of both institutions. GTB would bring the cash while NIC would insure the bank’s products. It looked like a match made in heaven.

But then all hell broke loose a few months after the bank kicked off operations. The first signs of trouble came from the long-running battle between staff of Makerere University and NIC over a pension scheme that was worth more than Shs 20bn. The university staff wanted their money, an amount that would have punched a huge hole in NIC’s balance sheet.

That problem remains unresolved up to this day, even though NIC has paid Makerere quite a substantial lot. Meanwhile, GTB was struggling to find a solution for all the problems it had inherited from CMF, not least the scorching drought of customers.

Then in 2009, during its first full year of operation, GTB announced it would make a loss of close to $3m. Things did not get any easier. With more losses on their way, IGI pumped $12.5m in GTB into 2010 to “shore up the bank’s capital base.”

It was not enough. Global increasingly became a bottomless pit, and not even the lifeline of good money could resuscitate it. Last Friday, Bank of Uganda decided it had seen, and tolerated, enough. However, to look at GTB’s problems in isolation would be an error many banks from West Africa that are operating in Uganda are finding it hard to make money.

Bank of Africa recorded a loss for 2013, and announced it would receive a capital injection of $10m from its shareholders. Orient bank, which made a profit in 2012, recorded a loss last year. Ecobank and United Bank of Africa also made losses in 2013.

None of these banks is expected to collapse any time soon. Some of these banks, such as Ecobank and United Bank of Africa, have such a g continental presence it is very unlikely the problems at their Uganda units are that worrying.

Still, Bank of Uganda has already warned that about four banks need capital injections this year.

West African banks had thought that the discovery of oil in Uganda would turn the country into a cash-cow. Just like oil in Nigeria, Ghana and Equatorial Guinea had attracted investments, and spurred business, in West Africa, it was thought the same cycle would take place in East Africa.

It’s not oil or minerals that are boosting business in East Africa Uganda’s bureaucratic processes have seen the oil industry literally slip into a coma. Rather, much of the money is being made from financing trade across the borders. And this is where Kenyan banks have mastered the trick.

KCB Uganda and Equity bank were the only ones that made profits of above 200 per cent in 2013, largely driven by financing cross-border trade. West African banks operating in Uganda need a regional presence if they are to make money.

Unfortunately not many of them have that leverage. Global Trust bank lacked that edge. It was never going to be easy to succeed in a market like Uganda, where competition is heavy. Hopefully, Global Trust bank’s collapse has left a few lessons for the other West African peers, painful as they may be.

Twitter: @jeff_mbanga

The writer is the business editor of The Observer.

Source : The Observer

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