Redesign your business model - Central Bank tells banks

A customer in a banking hall.

What you need to know:

Dr Ating-Ego advised that adaptation is not just an option but rather an essential rule, and one for which agility and flexibility of business models are central tenets.

Central Bank has cautioned banks that increased competition requires a redesign of business models, in a manner that puts agility and flexibility in response to customer expectations and emerging risks from technology and climate change.

The Bank of Uganda explains that Supervised Financial Institutions (SFIs) will need to create sustainable improvements within their operations, to not only ensure profitability and the associated organic capital growth, but also future viability.

Addressing bankers during a dinner for the Uganda Bankers’ Association in Kampala Hotel on September 02, 2022, the deputy governor Bank of Uganda, Dr Michael Atingi-Ego said: “The key risk here is existential, and it is about whether or not SFIs shall continue to exist and function in a future riddled with emerging developments like open banking, Artificial Intelligence, robotics, big data, secure but real-time and anywhere access to services, and ESG standards among others.”  

Banking disrupted
Dr Ating-Ego advised that adaptation is therefore not just an option or preferred business feature, but rather an essential rule, and one for which agility and flexibility of business models, are central tenets.

In what he called disruptive competition, Dr Atingi-Ego said the existential risks that Financial Technology Companies (FinTechs) pose to the business models of deposit taking institutions are beginning to materialise.
“These risks, together with the high operating costs and rising costs of capital for traditional deposit taking institutions, are reshaping the competitive landscape of financial service provision, and will likely force a recalibration of strategy to respond to the new operational realities,” he said.

Customer centricity

For the banks to be mindful of greater understanding of customer expectations, Dr Ating-Ego said today’s customers expect personalised, meaningful, relevant and yet memorable experiences in their interactions with banks.
This may be through the simplicity, intuitiveness, and accessibility of a platform. This immediate gratification and weak stickiness to brands or providers, points to customer loyalty that is neither easy to acquire nor retain for extended periods of time.

A customer in a banking hall.

Status of banks
On the status of banks in the country, he said total assets increased by Shs2.14 trillion or 5%, from Shs42.46 trillion at the end of March 2022 to Shs44.61 trillion at the end of June 2022.
 Over the same period total gross loans and advances increased by Shs717.0 billion or 4% from Shs17.87 trillion to Shs18.59 trillion.

The growth in assets was mainly supported by deposits which increased by Shs1.55 trillion or 5.3%, from Shs29.53 trillion to Shs31.08 trillion over the same period.
Similarly, the sector posted a higher profit of Shs.337.28 billion in the quarter ended June 30, 2022, which surpassed a profit of Shs.308.01 billion for the quarter ended March 2022. The ratio of non-performing loans to total loans improved slightly, decreasing from 5.79% to 5.32% over the same period.


Looking ahead, Dr Atingi-Ego said the future generation of banking customers may be more biased towards omni-channel banking, for example, adding that how a financial service provider achieves this omni-channel centric service model, has a direct and positive bearing on its relationship and the experience it guarantees this future generation of customers.

“Use of technology to enhance compliance and information security: With the right technology, banks can collect and mine data, perform in-depth analysis, and generate insightful reporting which is valuable for identifying and minimising compliance risk,” he said.  
Adding: “Banks must also invest in the latest technology-driven security measures to keep sensitive customer information safe while considering some of the new trends such as open banking, which allows third parties to carry out analytics using individual customer data.”

Central Bank’s response to changing environment
Dr Atingi-Ego said to cope with these contemporary developments, BoU will focus on adapting new technologies in all core services, as part of its key priorities over the next five years.

“With respect to surveillance of SFIs, we will rollout Supervision Technology (Suptech) to enhance our supervisory capabilities and data analytics. We will also issue regulatory guidelines for emerging issues such as cloud computing and cyber security,” he said.

On the regulatory front, Dr Atingi-Ego said the Parliament of Uganda passed the critical amendments to the Anti-Money Laundering legislation on August 30 2022, intended to strengthen the anti-money laundering regime.


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