Top 10 Challenges Faced by Commercial Banks in Uganda
Top 10 Challenges Faced by Commercial Banks in Uganda
Commercial banks in Uganda faced a lot of challenges. These challenges are both internal and external links. These challenges affect the bank’s overall performance and increase operational costs and can also result in the fall of the banks if changes are not done immediately.
Here are the top 10 major challenges faced by commercial banks in Uganda.
1). Corruption and Embezzlement of Funds
The first major challenge faced by commercial banks in Uganda is Corruption and Embezzlement of Funds by top officials.
Corruption and Embezzlement of Funds by employees and top officials may results in loss of funds as the banks may be unable to account for money as a result of fraudulent loans, or losses from cash stolen by employees.
Corruption and Embezzlement of Funds can also bring about damage to the reputation of the bank, as customers would not want to invest or get involved with banks with a bad reputation.
2). High Levels of Financial Illiteracy Among Users
The second major challenge faced by commercial banks in Uganda is the high level of illiteracy among their customers.
Since a vast majority of bank users come from rural areas, many do not have the education required in understanding financial aspects such as savings, loans, and investments. This poses a major issue for banks
Also, since the majority of bank users are illiterate, it makes it difficult for them to integrate into the technologically changing banking system such as understanding e-banking, use of ATMs, POSs, credit cards etc.
The lack of education among bank users also makes it difficult for banks to be able to determine their creditworthiness to determine if they are worthy to receive a loan or be able to pay it back on time.
3). Poor and Inadequate Infrastructural Facilities
Commercial banks in Uganda also faced the challenge of poor or inadequate infrastructure.
Most commercial banks lack the adequate number of facilities they need. They are often faced with issues such as inaccessible road networks, internet connection is often slow, and lack of constant electricity to keep the bank running.
All these challenges make it difficult for commercial banks to smoothly operate their business which often results in the loss of revenue, loss of customers, and closure of the bank.
4). Low Level of Technology Adaptation
The second major challenges encountered by commercial banks in Uganda are the low level of technology adaptation within the banking system.
Most banks lack the basic technology required to run the day-to-day activities of the bank. Others do not have the means to import this technology while others lack the skilled workers to operate and repair this technology.
The low level of technology often results to increase operational costs for these commercial banks.
5). Unfavourable Government Policies
Unfavourable government policies are another issue faced by commercial banks in Uganda. As poor government policies often discourage investors from taking loans from the banks. Poor government policies such as reserved requirements, treasury bill auctions, etc., all have affected commercial banks in Uganda over the last 2 decades.
6). Economic and Political Instabilities
Economic instabilities such as inflation, changes in interest rate, fall in real estate prices, etc also affect the commercial banks in Uganda.
Inflation discourages savings due to the loss of value of money of the consumers. The lack of savings at commercial banks would affect the overall liquidity of the bank.
The high level of political instability in Uganda also affects the overall functionality of commercial banks in Uganda.
With civil unrest in Uganda, commercial banks find it hard to open their branches in certain parts of the country, due to fear of losing their properties and the lives of their employees. This results in little or no expansion of the bank which affects the growth of commercial banks in Uganda.
7). High Level Of Competition
Commercial banks in Uganda also faced the challenge of a high level of competition. There is a high level of competition between the traditional banking system and FINTECH companies in Uganda.
FINTECH companies have gained rapid growth in Uganda over the traditional old banking system as they can provide services such as web and mobile apps that can easily give out loans to customers in the comfort of their homes.
More so, these FINTECH companies operate alongside cryptocurrencies which makes payment and trading faster across the globe as compared to traditional banking which takes lots of time.
The rise of FINTECH in Uganda is putting so much pressure on commercial banks to innovate their products and services.
8). High Levels of Poverty among Customers.
The top 8th major challenge faced by commercial banks is the high level of poverty among their customers. Since Uganda is among the developing nations in Africa, poverty is a norm among many people living in the less developing world.
The high poverty level posed a s a challenge to many commercial banks in Uganda as they find it hard to have clients with huge investments, also, the scattered nature of customers across several towns also makes it difficult for commercial banks to collect savings.
The high poverty level also makes it difficult for commercial banks to give out loans and also faced difficulties getting back these loans.
9). Cyber Security Breaches
Another top major challenge faced by commercial banks in Uganda is the issue of cyber threats. Commercial banks in general are often on the list of cyber-attacks from hackers and fraudulent organizations.
Cyber-attacks have been known to cost most commercial banks billions of amounts Uganda Shillings over the last decades.
These cyber-attacks often target users of the banks by stealing their money, passwords, or even bank information that often can implicate the banks when this info falls into the wrong hands.
Most commercial banks in Uganda do not have well-trained personnel to handle or combat these cyber threats.
10). Poor Customers Services
The last major challenges faced by commercial banks in Uganda are the inability to provide quality customer services to their customers.
Good customer service satisfies and meets the demands of its customers at all times.
Most commercial banks in Uganda lack such abilities. Most state commercial banks have staff with an attitude problem, they treat their customers poorly.
To add to that, most of the banks lacks a virtual customer services provider to meet the needs of customers or user that are far away.
Most websites of these commercial banks, do not have an available virtual assistant to assist customers in difficulties. More so, commercial bank websites are not well structured to enable virtual banking operations between users.
The above are some of the critical challenges faced by commercial banks in Uganda. These problems can be overcome when commercial banks embrace modern technology and increase customer services to their users.
Changes in government policies, and economic and political stability, are some of the major ways these challenges can be overcome.