In Summary

Expensive affair. According to a report by Prof Samuel Sejjaaka, regulatory regimes are feeding into the cost of operation thus making banking an expensive affair.

Regulations instituted by the Central Bank and other government agencies to regulate the banking sector are straining the industry and driving up the cost of operation, a report compiled by Prof Samuel Sejjaaka, the Abacus Business School country leader and former chairman of Uganda Development Bank, has indicated.

In his report presented during a meeting of different stakeholders at the East African Banking School to discuss the future of banking in Uganda, Prof Sejjaaka said the banking regulatory framework has unnecessarily been crowed with policies that restrict access to money as well as drive up the cost of operations in banking.

“Regulations make banking very expensive and inaccessible for many of our people who are poor,” he said, citing the many layers of duplicity that have been created as a requirement of procedure and policies.

For instance, he said, policies have made it necessary that a bank must hire internal auditors, compliance managers and risk managers, which as he said, are unnecessary multiplicity of roles, yet it is expensive to maintain such position.
“These are the things that come from the regulator. They increase the cost of banking,” he said, adding that the requirements often curtail banks as opposed to liberating the processes of innovation.

He also indicated that the requirements have seen banks struggle to keep down the cost of money, which has been cited as one of the largest drivers of interest rates.

Yesterday Dr Adam Mugume, the Bank of Uganda director for research, said regulations certainly induce costs, but without them the financial system would be in turmoil.
“The issue is how to regulate and ensure financial stability without necessarily increasing costs,” he said.

Prof Sejjaaka also tasked the Central Bank to solve the challenge of the cost of money that continue to influence the movement of interest rates.

He also challenged banks to closely study the market in order to build customer-tailored products.
“We need to rethink [the regulation regime, pricing, products and financial inclusion] as well as leverage on new innovation to recruit more customers,” he said.

In his presentation, Bank of Uganda governor Emmanuel Mutebile, said it was time for banks to leverage on digital technology to transform the industry, adding that technology has not only eased service delivery but has equally curtailed the cost of doing business.

However, the Central Bank, he said was cognizant of residual effects introduced by new technology such as mobile and other FinTechs which have eaten into bank deposits.

According to Mr Mutebile, banks must prioritise cyber security and computer maintenance to avoid disruption of banking services.
A number of banks have recently reported increased cyber fraud and systems failure that have disrupted service delivery.
Mr Mathias Katamba, the Uganda Institute of Banking and Financial Services chairman, said banking will need increased innovation mainly in the area of building products that are relevant to customers.