POLICY CONSIDERATIONS BEFORE BANK PRIVATIZATION: UGANDA'S EXPERIENCE

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POLICY CONSIDERATIONS BEFORE BANK PRIVATIZATION
UGANDA'S EXPERIENCE

• BY
• LOUIS KASEKENDE
• EXECUTIVE DIRECTOR
• WORLD BANK
• SEPTEMBER 24, 2004

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AGENDA

• OBJECTIVES
• ISSUES OF POLITICAL ECONOMY
• OPTIONS OF SALE
• REGULATORY ISSUES
• LESSONS

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OBJECTIVES

• FOSTER FINANCIAL SECTOR EFFICIENCY
• UCB LARGEST BANK ACTING IN NON-MARKET SENSITIVE
  WAY
• RESTRAINS CONDUCT OF MONETARY POLICY
• SEGMENTATION IN THE MARKET
• PROTECT PAYMENTS SYSTEM
• GAP-FILLING IN CREDIT MARKET
• ENSURING FINANCIAL SECTOR STABILITY
• ASSURANCES TO THE GENERAL PUBLIC ON PROTECTION OF
  DEPOSITS

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POLITICAL ECONOMY ISSUES

• LEGISLATION UNDER WHICH THE PRIVATIZATION SHOULD
  PROCEED
• LIQUIDATION VS PRIVATIZATION
• CAN YOU SUSTAIN POLITICAL SUPPORT THROUGHOUT THE
  PROCESS
• OBJECTIVE OF SALE VS OBJECTIVE OF SETTING UP A
  STATE BANK
• DOMESTIC VS FOREIGN OWNERSHIP
• VALUATION AND PRICING
• ROLE OF PARLIAMENT
• CORPORATE GOVERNANCE IN PREPARATION OF SALE

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REGULATORY ISSUES

• FIT AND PROPER TEST
• CONSORTIUM OF LOCAL BUYERS
• PUBLIC/PRIVATE PARTNERSHIP
• PUBLIC OFFERING
• STRATEGIC INVESTOR
• MARKET REPUTATION
• CAPITAL
• MANAGEMENT CONTROL

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SALE OPTIONS

• SELL ENTITY ON AS IS BASIS
• RESTRUCTURE FIRST
• DOWNSIZING (STAFF AND NON-CORE BUSINESS)
• CLEAN UP NPA
• UP-GRADE TECHNOLOGY
• BREAK-UP ENTITY
• RURAL BRANCH NETWORK
• URBAN BRANCH NETWORK

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IMPACT ASSESSMENT OF THE SALE

• ENHANCED COMPETITION BUT GAINS ARE STILL MARGINAL
• PRIME LENDING RATE REDUCED FROM 23.8 (MAR. 02)
  TO 14.7 (OCT. 02) LED BY STANBIC
• INCREASED TO 19.6 (JUL. 03) AND TO 20.6 (DEC.
  03)
• INCREASE IN CREDIT TO PRIVATE SECTOR BY 51
  BETWEEN MARCH 2002 AND JUNE 2004 ( STANBIC BY
  97)
• INTRODUCTION OF NEW SERVICES
• ON-LINE BANKING
• CREDIT PRODUCTS
• SALARY EARNERS SCHEMES VEHICLE LOANS LEASING
  MORTGAGES

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CHART 1 COMMERCIAL BANKS INTEREST RATES
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  Chart 2 Private Sector Credit (June 2001-June
2004)  
 

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IMPACT ASSESSMENT OF THE SALE(CONTINUED)

• 4.) INTRODUCTION OF NEW SERVICES
• ON-LINE BANKING
• CREDIT PRODUCTS
• SALARY EARNERS SCHEMES VEHICLE LOANS LEASING
  MORTGAGES
• 5.) INCREASED BANK CHARGES LARGELY DUE TO
  INCREADED COSTS OF AUTOMATION
• LEDGER FEES
• STATEMENT FEES
• CHEQUE FEES
• RETURNED CHEQUE OR STOP PAYMENT FEES

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LESSONS

• ROLE OF CENTRAL BANK
• PRIOR-SALE RESTRUCTURING
• POLITICAL BUY-IN
• LONG-TERM STABILITY OF MONETARY AND PAYMENTS
  SYSTEM SHOULD TAKE PRECEDENCE OVER REVENUE
  CONSIDERATIONS
• REACH UNDERSTANDING ON INVESTORS FUTURE INTENTIONS

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THANK YOU