Shashi Dhar, Managing Director, Bank of Baroda (Uganda), talks to World Business Journal about the bank’s growth, and how offering mobile and internet banking products caters to Uganda’s rapidly changing demographic.
How did the bank achieve 35% growth in net income, and 22% revenue growth in 2022 within the current market dynamics?
Our growth in profitability during FY 2022 can be attributed to several factors, including enhancing our efficiencies, reducing interest payments and improving yields on advances. Regarding the notable growth in interest earnings, it was the result of a combination of factors, including a 16% credit growth in advances and an increase in interest rates globally. We also increased our prime lending rate by one point, which led to a 6-10% increase in interest income from borrower accounts. We have strategically targeted industries that leverage the country’s strengths, and have plans to diversify into emerging sectors like energy and hospitality.
How have tech improvements like BarodaConnect internet banking and Baroda M-Connect plus mobile banking enhanced customer experiences?
To ensure a seamless customer experience, we conducted two customer outreach programmes and received highly encouraging feedback. One finding is that many customers consider us a reliable bank, because we have not experienced a major cyberattack or fraud. This has provided customers reassurance and resulted in positive experiences.
Recently, we have made significant strides, such as automating Uganda Revenue Authority (URA) tax payments through our mobile banking and internet banking services, extended the functionality of our cards to operate in the US, UK and Canada, where the use of PINs in point-of-sale transactions is not mandatory. This expansion into new regions was made possible by adapting our cards to work with these technologies. Similarly, we have made our cards compatible with platforms like Jumia and Netflix, where customers do not require a CVV number or one-time passwords for transactions.
How does Bank of Baroda plan to play a more substantial role in enhancing financial support for small and medium-sized enterprises (SMEs) in Uganda?
We play a substantial role in enhancing financial support for SMEs in Uganda. Our strategy involves a strong focus on the manufacturing segment, which accounts for 47% of our portfolio, as well as the agriculture sector (26%). We continuously monitor emerging areas where entrepreneurs are eager to leverage the country’s strengths, and we are committed to identifying and funding such ventures to contribute to the nation’s development. Supporting SMEs is a key focus for us.
However, there are certain challenges that hinder our ability to fund SMEs effectively. One of these challenges is unique to Uganda and stems from the Financial Institutions Act, 2004, which restricts banks from lending beyond a certain share of their deposits. Specifically, the Act limits total lending to a maximum of 80% of the deposits, but practical considerations often lead banks to lend only up to 70%. This means that a significant portion of resources remains idle, incurring costs for the bank and, ultimately, higher costs for borrowers.
To address this issue, we hope for enabling provisions from the government and the Bank of Uganda (BoU) that would expand our lending capacity, allowing us to make better use of our resources and reduce borrowing costs for customers. Such a change would enhance the competitiveness of businesses and make previously unviable ventures commercially feasible due to lower interest rates.
In terms of policies, other than addressing the deposit-to-lending ratio, we believe that Uganda has significant potential, and the government‘s initiatives are generally positive. Higher capital requirements, as stipulated by the government and the BoU, provide depositors with confidence in the safety of their funds.
Overall, we believe that revisiting the deposit-to-lending ratio stipulation could significantly benefit the country by unlocking resources for various projects, including those of the government.
How does the bank plan to evolve over the next 3-5 years?
In the next 3-5 years, Bank of Baroda envisions a future that builds upon its longstanding 70-year presence in Uganda. We are adapting to meet modern banking needs by diversifying into emerging sectors, supporting entrepreneurs and enhancing our tech offerings. Our ongoing investments in IT platforms will introduce innovative banking services in the coming years. We appreciate the support and guidance we have received from regulators and the government, which has allowed us to endure.
Additionally, we are considering opening offices in growing commercial hubs, as we remain dedicated to serving Uganda.
