Agriculture, oil will drive banking sector - Absa MD

Tuesday July 28 2020

Absa Bank managing director Mumba Kalifungwa.

Absa Bank managing director Mumba Kalifungwa. Photo/Courtesy 

By Martin Luther Oketch

What will drive the banking industry in Uganda in the next five years?
Uganda is set to become an oil-producing economy which will impact economic growth positively adding $20b to Uganda’s economy over five years. Oil will impact all other sectors, especially the services, agriculture, logistics and transport sectors. There will be resulting opportunities for Small and Medium Enterprises (SMEs) to take up. This will have a positive impact on the economy as many Ugandans are employed in these sectors.

We also foresee the continued growth of the tourism sector as Uganda remains a leading tourist destination. According to statistics from the Uganda Tourism Board, Uganda received 1.4 million tourists in 2018/19, with each tourist that enters the country being handled by over 15 people from their arrival to their final destination. The sector also contributes 7.7 per cent to GrossDomestic Product (GDP) which is approximately $2.2b and $.6b to export earnings.
Agriculture is another priority sector in which we predict upward growth in the next half-decade.

According to the Ministry of Finance, the sector contributes 22 per cent to the GDP and employs over 70 per cent of the population, a majority of whom are women and the youth. The sector’s growth is in turn expected to drive the growth of the manufacturing and agro-processing industries through the provision of raw materials.
Given this trend, we have a dedicated team that is committed to servicing individuals and businesses across the agriculture value chain, with an emphasis on offering tailor-made solutions to a sector that is susceptible to natural and market impulses.
How do you view the future of Absa in Uganda’s banking industry?
We see a bright future ahead. As a customer-centric bank, we pride ourselves in innovation and challenge ourselves to develop banking solutions that meet the needs of our customers.
As an African bank, we understand the unique needs of the continent and are better placed to address them. Uganda is one of the fastest-growing economies in Africa as a result of opportunities in the nascent oil and gas sector, agriculture and tourism.
With the advent of Covid-19, the World Bank projects Uganda’s economy to grow by 3 per cent to 4 per cent, which remains one of the highest on the continent. We see ourselves playing a key role in leveraging our expertise on the continent as a reliable financial services provider. Our competencies are currently focused on developing tailor-made solutions to complement that economic development.

How is the banking industry in Uganda unique when compared to other African markets?
Uganda is one of the fastest-growing economies in Sub Saharan Africa presenting vast opportunities for any bank as long as they’re able to understand the needs of the Ugandan customer.

However, access to formal financial services remains low with a huge gap between the banked and unbanked population presenting an opportunity for deepening financial inclusion. This is currently being addressed by strategic partnerships with telecom providers through mobile money and services like agent banking.

Banking is also still perceived as an elite service preventing rural populations from embracing formal financial services. There is also the misconception that formal financial services are more expensive evidenced by some parts of our population being more willing to take loans from SACCO’s and MDI’s than from banks. This presents an opportunity for banks to step up and be more competitive and strategic to curve out their own market.

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In addition, the cost of doing business in Uganda remains high for the banking sector. Internet penetration is still low at 37.9 per cent of the total population compared to markets like Kenya and Nigeria with penetration of 87.2 per cent and 61 per cent, respectively. Even in the areas that have internet coverage, low speeds remain a challenge. In a world that is fast evolving as a result of digital technology, the future of banking is digital. Our ambition at Absa is to become a digitally-led bank increasingly focused on leveraging modern technology to deliver banking solutions that meet our customers’ needs.

What new banking products has Absa introduced since it rebranded?
As we work towards realising our ambition to become a digitally-led bank, we continue to leverage technology to innovate and develop banking solutions that meet the constantly evolving needs of our customers and provide greater convenience in a fast-paced world.

There has been a gradual integration of digital technology through our systems and processes to enable us to serve our customers better. Our focus has not only been banking products but also programmes that enhance the capabilities of our customers and enable their growth, such as the introduction of the Absa SME Academy, which imparts our SME customers with the critical skills needed to thrive in the modern business environment.

Additionally, the introduction of our first fully digital branch and the intelligent chatbot – a user-friendly chatbot powered by Artificial Intelligence and designed to assist customers with their questions and banking needs from anywhere and at any time, have all been part of the drive to provide services to our customers without the need to come to our premises.
What is Absa doing to help its clients in Uganda sustain their businesses?
As a financial services provider, we believe in creating opportunities for our customers to make their possibilities real and in supporting them every step of the way.

In the face of a global pandemic that has had numerous effects on businesses and the economy, our focus is on supporting our customers navigate these tough times.
Part of our response has been our relief programme established in line with the guidelines issued by the Bank of Uganda. Through this programme, we have come to the rescue of our customers that have been directly or indirectly affected by the disruption presented by Covid-19 with payment holidays or moratoriums for a period of time.

Through our approach to relationship management, we can understand our customer needs and tailor unique financing solutions to suit their needs. Our approach is now collaborative as we realise that now more than ever, different customers require unique solutions as opposed to a one- size fits all approach.
What is your current lending rate?
Our current Uganda Shilling prime lending rate was reduced by 100bps in June 2020 to 17.75 per cent and our current USD prime lending rate is 12.5 per cent.

Does the loan restructuring policy in Uganda pose any risk to Absa’s operations?
The guidance from Bank of Uganda on the credit relief and loan restructuring measures provides accommodation to offer different relief solutions to our customers that have been directly or indirectly affected by the Covid-19 pandemic; from payment holidays/moratoriums, restructures and extension of facilities whose maturities were due.

From our experience of running with these measures for the past three months, there’s no risk posed to Absa’s operations. To the contrary, our customers are pleased with our efforts to provide them with these relief solutions; as they have lessened their financial burden in this very challenging time, which gives them a springboard to rebound their businesses to pre-Covid-19 levels.

What are the key risks you are seeing in Uganda’s banking and the financial sector?
Recently, Fitch revised its outlook for Uganda to negative from stable, which reflects downside risks from the Covid-19 pandemic shock to the economy.

The government has also revised the GDP growth for FY 2019/20 from 6.0 per cent to 3.1 per cent. The banking and financial sector is not immune from these risks as growth is expected to be muted and non-performing loans are expected to increase.

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