Bankers today, under their umbrella body Uganda Bankers Association, will be joined by the Prime Minister Ruhakana Rugunda, finance minister, Matia Kasaija and IMF Resident Representative Clara Mira as they hold their second annual bankers’ conference.
The all-day conference, scheduled to take place at the Kampala Serena Hotel, will focus on financial sector stability and how financial institutions can manage risk in a growing and fast changing environment.
In 2017, most big banks increased after-tax profits following a difficult year in 2016 in which one of the largest banks, Crane Bank, closed.
Still, even as profits increased for large banks, the number of banks reporting losses increased from four in 2016 to six in 2017. Cairo International Bank reported a loss of Shs1bn compared to a net profit of Shs1.4bn in 2016, following a reduction in interest income. ABC Capital Bank had a loss of Shs773.3m after a profit of Shs1bn in 2016.
Meanwhile, Commercial Bank of Africa, Tropical Bank, Exim Bank and Guaranty Trust Bank continued to make losses after a 2016 in red.
One of the biggest problems in the sector is high operating costs. This has made it mandatory for banks to digitise and embrace technological innovations to cut operation costs. In addition, others have explored the option of sharing costs, such as the shared Cash in Transit system between Centenary Bank and Stanbic Bank Uganda or the shared agent banking system managed by the Uganda Bankers’ Association.
The bankers’ body is currently rolling out the shared agent banking platform through their Agent Banking Company, which is aimed at increasing the banks’ reach as well minimise the cost of doing business.
One of the things to watch out for at the conference is what the bankers say about the new levies on mobile money transactions, especially, and the increase in excise duty. Given the prevalence of the platform in Uganda – more Ugandans use mobile money than use banking services – it has become a central feature in their digital products.
Instead of installing more automated teller machines, for example, some banks focused on building apps that allow customers to withdraw from their accounts to mobile wallets. Others, like Standard Chartered, have cut back on brick and mortar branches, banking instead on internet platforms and mobile money. Stanbic Uganda is looking at reducing foot traffic in branches and having upto 90% of routine transactions done on digital platforms by the end of 2020. But with that becoming more expensive because of the mobile money tax, and given the backlash to the levy, it will be interesting to hear how such transactions have been impacted.
Additionally, mobile money had also become the preferred platform for collecting school fees payments which are more expensive to collect in physical branches. This line of business – moving collections to apps using mobile money reduced collection costs for the banks, which then added a charge to each collection – will be negatively impacted if parents balk at paying tuition fees through mobile money because of the new tax.
The impact of the mobile money tax that has seen the closure of some businesses and reduced transactions on the platform is likely to be felt more during the next term school fees payments in September – if the tax still stands.
The Uganda Bankers Association also doubles as the sector lobby, pushing for changes in the regulation of the industry. It is therefore likely that there will be a lot of conversation on the new taxes, and their impact on the bottomline of the banks.
Already, there have been comments on the mobile money tax from the bankers’ association. The association chief executive, Wilbrod Owor, was recently quoted in The Observer newspaper saying that “we risk reversing the gains we are making as a country in bringing more people into the formal financial system.”
Uganda has struggled to finance its budget in an environment where there is decreased direct budget support from international development agencies, largely because of the informality of business that makes them difficult to tax.
Informal activities account for about 45% of national GDP, according to statistical body, Uganda Bureau of Statistics. These are very difficult to tax, transact in cash and therefore hard to trace. According to the World Bank’s 11th Economic Update, Uganda is collecting just about half of its potential in revenue. Industry experts however have spoken out and insisted that these leakages cannot be recovered through the 1% tax imposed on mobile money transactions, and that the impact on unbanked populations is far more hostile to development.
On the contrary, digital platforms can help governments formalise transactions and therefore provide more avenues in income tax. According to the 2016 McKinsey Report, digital finance services could allow governments to save upto US$110billion annually by reducing leakage in spending and tax revenues.
Other issues at the conference are likely to be around debt servicing for this financial year. More than half of Uganda’s revenue this financial year will go to repayment and debt servicing. This will be more pronounced for domestic debt, 32.5% of which is due in 2018.
Banks offer most of the domestic debt support through their trade in government bonds and treasury bills.
Today’s conference will be held in partnership with regulatory body, Bank of Uganda and the MasterCard Foundation.