Identity theft most recorded form of fraud among banks 

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Whereas impersonation and identity theft have been around for some time, the banking sector is increasingly recording a rise in cyber fraud. Photo / File 

What you need to know:

  • Impersonation, identity theft, forgery and cash suppression comprised 42.4 percent of banking sector scams and related incidences during 2022

Impersonation, identity theft, forgery and cash suppression were the most popular forms of bank fraud in the period ended December 2022, according to the Uganda Bankers’ Association Annual Report. 

The report, which was published early last week, indicates that the above forms of fraud, comprised at least 42.4 percent of banking sector scams and related incidences during the period under review. 

The increase, UBA said was due to increased reliance on digital payment and transfer of money and growth in collaborated services between banks and other players such as mobile money companies. 

For instance, during the period, the report noted, cases of wallet and internet banking account take overs rose with scammers exploiting third-party system vulnerabilities to comprise customer accounts. 

Other forms of scam under impersonation and identity theft included online card fraud, third-party risk posed by aggregators and loan fraud. 

Cyber fraud payment, the report indicates, increased during the period, becoming one of the commonest category of scams.  

This, the report noted, constituted 31.9 percent of the total industry fraud mainly driven by an increase in uptake of electronic services. 

Other scams included loan related frauds, which constituted at least 25.7 percent of captured cases.  

However, the report noted that less than 3 percent of attempted frauds, estimated at Shs43b, were successful, suggesting that 97 percent of attempts were blocked, foiled or rendered unsuccessful.

This was mainly due to increase investment in control frameworks that have been made necessary by a radical shift from the brick and mortar setup to a highly technology drive banking system. 

During the period, UBA noted, it had engaged a number of  mitigation measures to create fraud guard systems that would flag suspicious transactions as well as engaging consultants who had finalised the design of the proposed Cyber Security Operations Centre, in addition to hiring a project manager to oversee its phased rollout. 

“The first phase of the Cyber Security Operations Centre is expected to be up and running in [the second quarter] of 2023,” the report reads in part. 

The Cyber Security Operations Centre, which UBA said was benchmarked on Citibank’s Fusion Centre  in New York, US, will present several aspects of cyber defenses, among which will include setting up and management of cyber security centres and mapping types of cyber risks, methodologies and trends. 

The centre will also map other third party cyber risks and any typical legal risks with the desire of cultivating, fostering and reinforcing collaboration in cyber security risk management.

In March last year during the Fraud Forum in Kampala, UBA indicated that financial institutions had put in place consumer protection guidelines as well as enhancing internal and external triggers.

Banking sector profits decline by Shs140b 

Banking sector profitability dropped by 10.6 percent in the period ended December 2022, highlighting the impact of a tight economic environment, occasioned by high inflationary pressures, Covid-19 spillover effects and runaway commodity prices. 

In details contained in the Uganda Bankers’ Association (UBA) 2022 Annual Report the value of banking sector profitability dropped by Shs140b to Shs1.21 trillion compared to Shs1.35 trillion recorded in the same period in 2021. 

However, the report indicates, banking assets grew by 11.2 percent from Shs41.4 trillion to Shs46.1 trillion due to an increase in marketable trading securities and growth in loans and advances, while customer deposits increased from Shs28.2 trillion to Shs31.6 trillion, representing a 12 percent growth. 

Loans grew Shs19.9 trillion from Shs17.7 trillion, translating into a 12.5 percent increase.  Banks also reported a general decline in provisioning for bad and doubtful debts but the performance remained fragile with increases and reductions registered across the sector. 

Banks, under the International Financial Reporting Standard 9 are required to provision for debt they believe will be difficult to recover.  

The provisions help banks to offset such risks that financial institutions recognise as a loss ahead of time. 

During the period, a number of banks including Standard Chartered report an increase in loan provisioning to Shs91.5b from Shs37 .05b while Equity Bank saw its provisioning grow to Shs90.6b from Shs25.7b.

The bank also reported an increase in written off debt to Shs34.7b from Shs10.3b. Stanbic reported a decline in debt provisioning to Shs59.57b from Shs70.4b but written off debt increased to Shs101.12b from Shs63.22b, while Centenary saw its provisioning drop to Shs21.8b from Shs49.1b. The bank wrote off Shs36.2b compared to Shs23.4b in 2021. 

The UBA report noted that despite a more challenging economic environment, only three banks posted losses compared to eight in 2021. 

During the period Bank of Baroda saw its provisions for bad debt increase to Shs11.065b from Shs7.2b, while written off debt reduced to Shs7.984m from Shs1.86b. 

Post Bank provisioned Shs10.7b from Shs9.4b while written off debt increased to Shs10.6b from Shs6.5b.