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New kids in banking

Emmanuel Tumusiime-Mutebile

Competition is good for us

Annet Nakawunde Mulindwa, the managing director at Finance Trust Bank (FTB) said that their niche gives them advantage to thrive in the market even when new players join.

“We are happy to see more banks join the industry. It means we are more people serving the population; competition is healthy,” she told The Independent.

She said Uganda’s largest population is unbanked and that provides an opportunity for new players to come and bring onboard new people into the banking sector.

“It is health competition; there is no scare,” she said.

She said they will continue to target women as it has been over the years. They will also move in line with changing technology to achieve customer satisfaction, retention. They will also increase the number of agents from 100 to more in the coming years in addition to tapping into new products like bancassurance.

Anthony Kituuka, the executive director at Equity Bank said that Uganda’s market is open for new players and that each player comes in with a new strategy.

“Having new players won’t alter our focus as a bank,” he told The Independent.

“As Equity we continue to implement our customer oriented strategy focusing on convenience, freedom of choice of the products,” he said.

Like Kibuuka said, Anthony said, new players will enhance financial inclusion, improve savings and reduce the overall cost of money.

He added that they are continuing to invest heavily in digital channels, agent banking and agriculture financing to reach out to as many customers as possible.

William Sekabembe, the chief of business and executive director at dfcu bank too said they are not worried.

“Competition is always welcome and we are happy that the industry is growing,” he told The Independent. He added that the industry is going through a lot of transition in terms of technology that is being used to deliver services.

Banks that are going to survive in the future, he said, are those that have embraced change, innovation and technology. “That means you need to keep surprising your customer through innovation and that is the end game,” he said.

As dfcu, he said they have rolled out their enhanced e-banking solution, investment club app, enhanced their core banking system.

They have grown the number of agent bankers to over 1,400 and are looking at enhancing opportunities on other new products.

Going forward, Bank of Uganda said in a report that they are optimistic about good growth in major   sectors   of   agriculture, construction, manufacturing   and   trade which are cash cows for banks.

It however, said that increases in interest rates could heighten credit default rates and that the IFRS  9 accounting   standard, which came   into   effect in January    2018, could    lead to    an    increase    in provisioning  for  expected  losses,  which  could then pass  through  to  bank  profitability  and  capital.

Banking at a glance

About 6 million Ugandans hold bank accounts out of a total population of 40 million people.

According to Bank of Uganda’s Financial Stability Report for June 2018, profitability  of  the  banking  industry  improved  in  the year  to  June  2018  compared  to  the  previous  year.

The report says that Banks’ aggregate net after-tax earnings increased by 82.6% from  Shs404.5  billion  in  the  year  to June  2017  to  Shs738.7 billion  in  the  year  to  June 2018.

The    primary    reason    for    the    improved profitability of banks was a large fall in expenses on provisions for bad debt.

Total  income  increased  by  USh.46.6  billion  in  this period, mainly on account of gains of Sh54.1 billion from  foreign  currency  operations as  a  result  of  the depreciation  of  the  local  currency in  the  quarter  to June  2018.

The report says that the banking system remained resilient, with adequate capital and liquidity buffers. The ratio of core capital to risk-weighted assets as at June 2018  was  21.8  percent,  more  than  double  the  statutory  minimum of  10  percent.

The growth  in  demand  for loans was  mainly  from  households,  the manufacturing  and  agriculture  sectors.  On  the  other hand, business services, construction and real estate, and trade and commerce all recorded larger declines in  demand  for  credit  over  the  year,  in  comparison  to the previous year.

In the year to June 2018, banks maintained a sectoral lending pattern similar to that witnessed in the same period in 2017.

The building and construction sector, trade   and   commerce   sector   and   personal   loans continued  to  account  for  the  largest  share  of  total loans as in the previous  year  with 20.1 percent, 19.2 percent  and  18.9  percent  respectively  at  the  end  of June 2018.

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