Technological advances pose new risks in banking

A banker checks money in a money detector. The evolution of technology has eased innovation of varied banking products; thus facilitating modern banking. FILE PHOTO

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Proposed legislation. The Central Bank wants to create some regulations to govern modern banking.

Kampala. Bank of Uganda has cautioned that the adoption of Information Technology (IT) and the increasing integration of the financial sector into global financial markets have ushered in new risks in the banking industry and require adjustments in regulatory framework.
However, the deputy Governor Bank of Uganda, Dr Louis Kasekende, said: “The adoption of IT increases the importance of operational risk, while the increasing integration of the Uganda financial sector into global financial markets, through cross-border banking and capital flows, also creates new sources of risk.”
While addressing the Judiciary and Uganda Bankers Association officials on Monday in Kampala, Dr Kasekende said as is the case around the world, the industry in Uganda is evolving very rapidly with new products coming on the market.
Over the last decade, new entry and regional economic integration have combined to spur competition in the financial services industry in Uganda.

New products
Several new banking products are on the Ugandan market and there is likelihood that more will be introduced going forward. Dr Kasekende said innovation and growth in the banking market are essential for meeting the needs of consumers and businesses for financial services, but they also generate new sources of risks.
The evolution of technology has eased innovation of varied banking products including the VISA, MasterCard, online Banking, Mobile Money and E-commerce; thus facilitating modern banking.
Dr Kasekende said: “IT is a key driver of new banking products like mobile money transfers. Today, IT innovations have influenced our ways of living in many fields including banking industry and we all benefit from the new technologies.”
Although technological improvements are making access to banks easier, Dr Kesekende says the growth of IT investments in the banking industry come with a concern on ‘security’ and new risks.
“IT is a key driver of new banking products like mobile money transfers. Today, IT innovations have influenced our ways of living in many fields including banking industry and we all benefit from the new technologies,” he added
The global financial crisis that erupted in 2008 prompted a re-thinking by central banks around the globe of how they approach economic and financial stability.
Picking lessons from advanced economies, the Central Bank wants to create some regulations to govern modern banking.

The trend of banking in Uganda

In Uganda, banks are embracing information technology to offer innovative financial products such as mobile money, as well as improve the efficiency of their operations.
Traditionally, credit risk was the major type of risk in banks in Uganda following loan defaults by borrowers.

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