23 December 2012

Uganda: Competition Needed in the Banking Sector - IMF

The International Monetary Fund Senior Resident Representative in Uganda, Ana Lucia Coronel has said that there is a need for banks to put up stiff competition in the sector, if customers are to benefit.

"There is competition but it is not strong enough to influence business decisions," Lucia told The Independent in an interview on Dec. 21. She said in other countries, especially developed ones a decision by one bank influences others to do the same.

"If one bank cuts interest rates, all the others will cut to ensure they don't lose customers to the former. And in that way, customers benefit," she said.

Uganda has 25 commercial banks offering both retail and whole banking services to about 11% of Ugandans participating in the industry.

Lucia hailed the central bank's work of maintaining a stable macroeconomic framework to ensure the economy goes back to its desired growth rate of over 6% per year, after it slowed to 3.2% in 2011/2012 down from 6.7% in 2009/2010, largely due to a tight monetary stance by the central bank that aimed at fighting inflation that hit the highs of over 30.4% in October, 2011.

"It has used the central bank rate as a key monetary policy tool to fight inflation and indeed inflation has dropped to single digits," she said. "Now the priority should be reviving economic growth, going forward in 2013.

She tipped on the recent donor aid cuts following the misuse of aid money in the office of the prime minster and said: It is unacceptable that resources meant to address social and development needs have been diverted to other purposes in an illegal way." She added that this has motivated a strong reaction not only from Ugandan development partners, but from the society as a whole.

"It affects government spending plans and it hurts all citizens in Uganda. This unfortunate situation also provides a key opportunity to the government to take definitive action to address weaknesses in public financial management and ensure proper and transparent handling of public funds,"she said.

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