More financial products expected from banks

Users of commercial bank services can expect to get more and cheaper products such as insurance, after the Finance Minister Syda Bbumba indicated in the 2010/11 budget that she will allow banks to diversify their offerings like in developed markets.

Ms Bbumba said she will be submitting amendments of the Financial Institutions Act 2004 (law) to the Parliament to allow the banks offer bank assurance, financial products under Islamic banking and other market responsive products to their customers.

“This will allow banks to move into previously untapped markets,” she said.

The announcement follows recommendation by the Bank of Uganda to the Ministry of Finance, for a review of Uganda’s financial laws to match those of Kenya and Tanzania.

Among the expected changes will be the increase in minimum capital requirements for banks from Shs4 billion to a higher figure, which will be announced at a later date.

The capital provides incentives for bank owners to ensure sound management of their bank and it provides a buffer to protect depositors and other bank creditors against losses.

Dr Louis Kasekende, the deputy governor of Bank of Uganda, recently told bankers that the current minimum capital does not ensure that new entrants to the banking industry have sufficient capital to support their operations.

In an interview prior to the budget reading, Mr James Agin - the managing director of KCB Bank - said increasing the capital requirements would strengthen the banking industry and equip commercial banks with more capital to work with.

“When you have more capital, you use it and pass it on to the customers,” he said recently.