Bank of Uganda
Remarks by
Prof. Emmanuel Tumusiime-Mutebile,
Governor, Bank of Uganda
18th East African Banking School:
The Future of Banking in a Digital and Disruptive Environment
Pearl of Africa Hotel
August 6, 2018
Mr. Anthony Mulindwa, Chief Executive Officer of
the Uganda Institute of Banking and Financial
Services
Senior Officials from the EAC Sister Institutes of
Bankers
Participants from our EAC Partner States
Good morning ladies and gentlemen
I would like to begin by welcoming you all to the East
African Banking School and to commend the Uganda
Institute of Banking and Financial Services for hosting
the School.
The collaboration between the Ugandan Institute of
Banking and Financial Services and its counterparts in
Kenya and Tanzania in organizing this Banking
School is an excellent example of the practical
contribution, which regional cooperation at the
institutional level can make to capacity building and
professional training in our region.
The theme for this year's Banking School is: "The
Future of Banking in a Digital and Disruptive
Environment". It is a theme, which could not be more
pertinent for the banking industry in East Africa.
The adoption of digital technologies is having a
profoundly transforming the banking industry. Two
aspects of this transformation are especially
important.
First, digital technologies, such as mobile banking and
internet banking, have made possible new methods of
delivering financial services to customers. This has
enabled banks to expand their customer base, in
particular by bringing customers into the banking
market that had hitherto been excluded from access to
banking services, because it was not commercially
viable for banks to serve this segment of the potential
market. As such, digitalization is making a substantial
contribution to enhancing financial inclusion,
although its full potential in this regard has yet to be
realised.
Over the last decade Kenya has been a global pioneer
in the adoption of digital technologies to transform
the nature of financial services. Initially this
transformation was driven by the growth of mobile
money, which is primarily a payments service, but it
is now evolving into mobile banking with a broader
range of financial services.
Secondly, digital technologies have enabled the
automation of a wide variety of tasks previously
performed by bank staff. It, therefore, offers banks
opportunities to reduce their operating costs, mainly
through automation of operations. Increasingly
customers can conduct transactions with their banks
around the clock without having to enter a banking
hall or interact with any bank staff.
The adoption of digital technologies to deliver
financial services also creates challenges and risks for
commercial banks; three of which are particularly
worthy of note.
First, the traditional model of commercial banking
involves establishing long term relationships with
customers and supplying a range of financial services
to their customers. This enables banks to mobilise
deposits more cheaply and to reduce the costs of
transactions, thus making lending more commercially
viable. The traditional model of commercial banking
also provides synergies between different types of
financial services - payments, deposits, and loans -
which allow banks to realise economies of scope.
Digitalization threatens to disrupt the traditional
model of commercial banking.
In particular, digitalization may enable non-bank
service providers to encroach into the market for
some of the key services offered by banks. For
example, telecom companies can offer payment
services through mobile money. This will diminish
the incentives for the public to hold demand deposits
in banks, which in turn threatens to erode the banks'
primary source of low cost funds.
Secondly, the adoption of digital technologies will
transform the spectrum of risks which banks face. In
traditional banking business models, operational risks
are relatively minor compared with credit risk or
market risk, but this will not be the case for banking
services which are dependent on digital platforms for
their delivery. Banks will be exposed to the risk that
their digital platforms will suffer breakdowns, which
will disrupt the provision of services to their
customers. They will also face risks of cyber fraud
perpetrated on their customers' accounts.
Ensuring that their IT systems are resilient and that
their customers' accounts can be protected from cyber
fraud should be a priority for commercial banks.
Banks cannot afford to lose the trust of their
customers with respect to the safety of their accounts.
Digitalization will thus add a new layer of complexity
to the risk management of banks.
Thirdly, digitalization will have major implications
for the skill requirements of bank staff. Banks will
need to employ staff with highly specialized IT
expertise who can maintain their IT systems and
rectify faults in these systems very quickly, to avoid
disruption of services to their customers.
Clearly people with these types of skills are in scarce
supply on the labour market in East Africa. The
demands on managerial staff will also evolve. Bank
managers will need to develop a good understanding
of how their IT systems work and how they link into
the overall operations of banks, so that they can
identify where operational risks are likely to arise
from and make strategic decisions about the use of IT
systems.
Over the course of the next five days, you will hear a
variety of presentations from experts in the field on
topics related to the digitalization of banking services,
including presentations on how banks can
strategically position themselves in rapidly changing
financial markets, new paradigms for financial
inclusion, risk based oversight and regulatory
compliance and career development.
You will have the benefit of an excellent team of
resource persons, most of who are senior officials in
the financial services industry in East Africa, and who
have come here to share their expertise with you. I am
confident that the presentations and discussions in
this Banking School will offer you valuable insights
and contribute to the development of your careers.
Thank you for listening.