Banks heavily reliant on loans for revenue, says sector report

Kampala. Charges on loan application constitute one of the largest sources of revenue for banks, a recent report shows.
The report, authored by African Alliance Banking, analyses Uganda’s banking sector focusing on performance and potential revenue streams for the sector.
The report indicates that loan application fees account for about 56 per cent of the industry’s bank charges, thus contributing vastly to the banking sector total revenue.
This contribution (loan fees revenue) explains the poor performance posted last year as some banks registered profit declines and losses on the account of reduced loan uptake.
Stanbic Bank for instance posted a 22.1 per cent decline in net profit to Shs101.8 billion compared to Shs130.8 billion posted over the same period in 2012 while Imperial Bank reported an increase in the loss to Shs1.9 billion from Shs1.7 billion in 2012.
Some of the main charges include loan application fees, commitment fee, arrangement fee, administration/processing fee, monitoring fee, insurance, legal, facility renewal, restructuring and discharge of security documents among others.
Data indicates that banks for instance charge between Shs15,000 and Shs65,000 as application fees and about 3 per cent of total loan value as commitment fees.
Arrangement fees vary from 1 to 3 per cent of the loan value depending on the institution, about 2 per cent [monitoring fee] while discharge of security documents ranges from Shs5,000 and Shs50,000.
Even with the low access to credit, Mr Arthur Nsiko, an analyst with African Alliance, said loan application fees will continue to dominate bank charges due to low access to credit.

ATM fees
A number of banks have suspended ATM fees but others charge between Shs300 and Shs800. School fees deposits ranging between Shs2,000 and Shs3,000, are also some of the banking sector’s revenue streams.
However, banks are taking a cautious step on deposit levies as they seek to grow their credit books as well as attracting new customers.
For instance, the report notes that charges on deposits have declined gradually in the last five years.

Bounced cheque penalties

Banks also make money through penalties instituted for the abuse of set procedures. For instance, penalty fees vary between Shs5,000 and Shs250,000 depending on the nature of a fault committed.
Barclays Bank charges Shs175,000 for a bounced cheque.
The bank charges Shs30,000 for a returned cheque that fails to meet set standards, according to Bank of Uganda.
Standard Chartered Bank charges Shs250,000 for a bounced cheque while Diamond Trust, United Bank for Africa, Ecobank and Housing Finance charge Shs150,000 each.
Stanbic Bank charges Shs130,000 while ABC Bank, Finance Trust, Equity and GT Bank charge Shs100,000 each for bounced cheques.

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