When the Bank of Uganda published a list of all commercial banks and their charges recently, the concerns about the high cost of financial services in Uganda were highlighted.
While the banks were quick to defend their charges saying they are "affordable," some of the business people the Independent has spoken to said the charges need to be revised downwards.
For example, Justus Nahurira, a director at Global Safety Solutions Ltd, said one of the major concerns they have is that of the high bank charges and lending rates they are charged.
"It is hard to grow your business when banks overcharge you," said. He said the chose a bank that would enable them to grow, which they have partly achieved but they have asked their bank to reduce their charges to no avail. "But still we have been asking them to reduce some of the charges on loans and other transactions and we hope they will," he said.
Unfortunately, most SMEs only pay attention to interest on loans yet other 'minor' ones like charges on cheque transactions, monthly charges and other hidden charges could be equally hurting. That is why BoU on a quarterly basis publishes bank charges for all banks and lending rates to enable customers to make an informed choice about which bank to associate with.
Though Nahurira and other SMEs remained critical of the "high" charges and lending rates, a top BoU official held a different view, which effectively means that Ugandans will have to bear with the burden for a little longer.
"The current charges are not far below or above the rates charged by other banks across the region," Adam Mugume, the executive director for research at BoU said in a recent interview. "Overall, charges are not rising and other banks have removed some charges."
So, it is up to the customer to decide on which bank to go to, Mugume added. He added that publishing the rates aims to promote transparency and to enhance competition in the provision of banking services to the public. He said it was advisable that customers who are being charged differently from what is published should report to BoU.
In its monetary policy report for August, the BoU said lending rates have come down to 22.6% as of June 2013 from 27% about a year ago. The report says lending rates have been slow to fall because banks are granting loans only to their most creditworthy clients, slowing the economic growth recovery.
It warns that despite some decline, lending rates are exhibiting downward rigidity, mainly due to high fixed costs, heightened risk aversion and difficulties in assessing creditworthiness.
"With credit constraints and still elevated lending rates, private sector investment could remain subdued for relatively extended period," the report reads in part.
Most banks justified their charges saying for instance that ATMs are very expensive to maintain 24/7, with the high expenses on security, insurance, CCTV cameras, fuel for generators, rental fees among others.
Analysts however insisted that there is a need for banks to strike a balance between making huge profits and supporting businesses to flourish by subsidizing bank charges and lending rates.
Charles Ocici, the executive director at Enterprise Uganda, said SMEs should choose a bank that looks at strengthening its relationship for the long term.
"Some banks look at these businesses as a source of income to grow their profits which is not good," he said. He added that SMEs should choose a bank that on top of all the other commercial services can offer advisory services and the one that can provide safe custody for their money.
"Banks should advise on what type of account to open, type of loan to apply for and they (banks) should advise SMEs on when to take a loan."
Stephen Kaboyo, the managing director at Alpha Capital Partners, a forex and financial consultancy firm, commended the Central Bank for making bank charges public. He said commercial banks income earned from other activities (minor transactions) other than the core banking services (credit) vary across the board depending on what a bank charges.
He said this non-interest income (income on charges like ATM transactions etc) is a major contributor to the revenue stream of banks, which in recent years has amounted to billions of shillings per year. "Some charges are not customer friendly," he said.
Kaboyo warned that though economic indicators - interest rates, exchange rate and inflation rates - were improving, this may not necessarily affect the charges levied on providing some of the banking services despite the rising competition among financial institutions now numbering 24.
"In my view increased competition between banks will provide a greater incentive for banks to lower bank charges at the same time lead to diversification," he said.
Interest earned on Shs 10m fixed deposit:
Bank Interest paid (%) Ammount earned
Barclays 2 200,000
Centenary 4 400,000
Crane 7 700,000
DFCU 3 300,000
Equity 9 900,000
Housing 4 400,000
KCB 5.25 525,000
Stanbic 2.5 250,000
Stanchart 2.25 225,000
Interest charged - by selected banks on - Shs 10m loan per year
Bank Prime Lending Rate (PLR-%) Interest paid (million)
Barclays 19.8 1.98
Centenary 21 2.1
DFCU 22 2.2
Equity 22 2.2
Housing 21.5 2.2
KCB 21 2.1
Stanbic 20 2.0
Stanchart 21 2.1