Corporate vs retail: which one in Uganda?

Both segments are good. But you need a good strategy to optimize corporate banking in a way that does not compromise your overall profitability

Both segments are good. But you need a good strategy to optimize corporate banking in a way that does not compromise your overall profitability and other core indicators specifically deposits, asset quality, and jaws ratio to mention but four. Winning banks first conquer retail, and corporate success comes naturally thereafter even for banks that say they focus on the high-end corporate. They first pursue the individuals at the helm of the corporate clients they target.

Retail is where the heart of banking is. And it will remain so. The rise of fintech, which mostly powers the payment ecosystem, is fuelled by retail. That is a market worth over Ugx. 10 trillion in Uganda by 2024. And our annual data analytics on banking in Uganda indicates that the top 10 micro-finance banks control just 22% of the retail market. All the other banks control the other 78%! That shows you the power of retail banking. And mind you, the biggest prize in retail is in payments. Currently, that lunch is eaten by telecoms mobile money! The future of retail should focus on tapping into that as well.

Our data on Uganda’s banking sector shows that many banks are not growing at the pace they should be, given their asset base, due to the lack of a deliberate strategic focus – where do you put more than 60% of your effort to win convincingly?

When you chose to win say incorporate, you develop your capabilities to become a preferred corporate banker. You start by defining in clear detail the specific corporate customer of your interest. Who is that corporate? What is the best way to segment the corporate customers to reach them precisely? Is it by geography? Annual revenue? Tax registration status? Years in business? Or by the number of employees or by type of business? For your bank, select a segmentation strategy and stick with it over your planning period. That way, you can undertake a survey to understand their specific needs and the capabilities you need to win.

For many banks, retail is where the real meat is. Focus is on creating capabilities to win in retail, but a door left open for corporate. When you win in retail, you automatically excel incorporate. However, the reverse may not hold. Because corporate tends to create some form of fat, which focuses on look and feel, price sensitivity is a key differentiator and that is costly, at expense of retail that calls for agility and convenience – yet that is the future of banking.

There is no need to phase out corporate clients. Just focus on winning with your chosen segments. Keep in mind that corporate deposits are pricy due to the bargaining power they have and yet offer less interest on loans due to information asymmetry. More so, we can offer them other services like wealth management rather than focusing all our business on them. 

Banks like Stanbic and Absa have been able to diversify their corporate portfolio and continuously move into the retail big time. Many innovations by all banks focus on winning in retail, as corporate success comes naturally when retail is doing well. 

There is a need to conduct analytics on specific sectors in retail to focus on. Banks should develop a recession strategy where key stable sectors are outlined and focused on in terms of lending. Also, for a retail banker, there is a need to improve turnaround time. What is the typical retail customer journey you want to optimize?  For account and loan processing. Such small things increase churn if not tapped into.

The future of retail is in payment facilitation, automated transaction processing and creating an ecosystem banking agenda where the success of the customer automatically makes the bank succeed.

To learn more about banking in Uganda, take a short survey here, https://www.summitcl.com/summitbanking21/

Copyright Mustapha B Mugisa, Mr Strategy 2021. All rights reserved.

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