Banking Sector in Uganda: An Exclusive Interview with Mumba Kalifungwa of ABSA Bank

Interview with Mumba Kalifungwa, CEO of ABSA Bank Uganda

What is the current state of ABSA Uganda as well as the banking sector itself in the country? What has been the effect of the current COVID-19 health crisis?

From a general banking sector perspective, one of the things that we have had to deal with is how we navigate the terrain as a consequence of the changed environment and the impact of the COVID health scare, not just for individual companies but for the nation as a whole. For ABSA itself, one of the challenges that we have had to address is how we can remain resilient in this time of the pandemic while we are faced with this unforeseen eventuality. Obviously, the starting point was for us to put into place resiliency plans for which I chair the discussions. Number one was to ensure the safety of our employees. We needed to come up with guidelines in terms of protocols on how our employees need to remain engaged with their line managers and also with the institution overall. For me, primarily, one of the greatest challenges I needed to manage was to ensure that we settle our employees and just give them a window of hope that this pandemic that has befallen us is a challenge that nobody could have foreseen, but we need to demonstrate as leadership that first and foremost, we care for our people and that we will hand hold them through the process so that they know that the institution is there to take care of their interests. Some of the things we did were ensuring that we provide them with third-party counseling services, we developed new plans in terms of how we as leaders communicate with the employees, and we put into place new plans in terms of how individuals could keep abreast of what was going on. We are not just looking at our employees, but the wider business as well as our customers. There were definitely challenges we have seen as a consequence of what has been happening. Naturally, there was a slowdown in the level of business activity from a transaction volume perspective and from a credit demand perspective as a consequence of the lockdown. In certain instances, some companies had to completely shut down their operations. Only companies that were designated as essential services were allowed to continue operating. As a consequence, that had an impact in terms of the slowdown in economic activity. The sector has also remained relatively subdued over the last quarter. The positive thing is that we are beginning to now see elements of recovery in both the economy and the banking sector. The Purchasing Managers’ Index, or PMI, is conducted by one of the banks in the sector and it speaks to various aspects of the supply chain such as new orders, new invoices, and demand in terms of activity. Ideally, if the economy is operating effectively, the PMI score should be over 50. At the onset of the pandemic, that score had fallen to around 21 or 21.6. But from about May, June, July as the lockdown was eased, we began to see an improvement in the level of economic activity and we began to see certain sectors opening up such as retail and wholesale trade, which are quite significant contributors to our overall business and the general banking environment. We began to see areas such as construction open up. From what we have seen over the last quarter, the recovery is quite positive. One of the things that has also happened during this period of lockdown, not only from an ABSA perspective but from a general banking sector perspective, speaks to the financial stress that companies and individuals have had to undergo and have been subjected to. Our Central Bank came up with certain credit relief measures whereby they gave guidelines to banks to avoid significant shocks to the system in terms of impairments or non-performing loans. The objective of putting these measures into place was to ensure that, as an entity or as an industry, we would cushion the effects of reduced economic activity on our clients as a consequence of the COVID pandemic. What that essentially meant was that we, as banks, needed to partner with the Central Bank and find these credit relief measures where you give customers relief in terms of capital and interest payments, defer them in line with the stress that they have experienced over a period of time, enter into agreements where we restructure the loans to ensure that we provide some sort of relief to the customers. That is one of the most significant things that we have had to grapple with over the last few months. Since April 1st, I took over ABSA Uganda as the virtual CEO. As such, we have had to find a working formula and technology has proved that if you put your mind to it and if you dare to think differently, you can actually effectively operate even in a virtual environment. So, keeping the business afloat, motivating the people, responding to the needs of our clients as a consequence of those pressures that we are seeing from a financial downturn perspective are some of the things that I have had to deal with over the last few months. We hope to continue to contribute to the growth of the economy in this challenging environment.

What are your strengths?

What I see as our strength as ABSA Bank Uganda, as an institution specifically, is our reach not only locally but internationally. ABSA Bank Uganda is part of the ABSA Group of companies with our headquarters based in South Africa with circa 40,000 employees. We are a pan-African bank and we have a presence in twelve African countries. We have representative offices operating out of London and New York which gives us an international presence and allows us to deal with multinationals and other international a partners. In terms of packaging and how we are positioned in the Ugandan economy, the advantages are that we are backed by a group that has strong capital and liquidity base. The product offering that we have is of international acclaim. Franchise in terms of distribution network and channels is quite vast. The technology platforms and digital solutions that we have are some of the things that are real competitive advantages for us. The significance of ABSA Uganda Ltd as an entity in terms of the Ugandan economy and the banking sector is that it is designated as a domestically significantly important bank. It is designated as such by the Regulator. That speaks to the impact that this bank has in terms of contributing to the national economy and the banking sector as a whole.

Where are you the most present in the sector?

As ABSA, what we try to do is to support sectors that influence the growth of the economy. Typically, we are in all critical sectors. Obviously, we have risk appetite for each sector. As an example, when you look at ABSA Bank Uganda, it is a retail and wholesale bank so we have a blend of business that is focused on servicing retail clients, large local corporates, global corporates, and other international organizations. We play in most industries of the economy and we do not operate in one particular market niche. We play in manufacturing, wholesale and retail trade, construction, agriculture, telecoms, energy, etc.

What are your projected results for the end of the year?

We have a very strong balance sheet in excess of 3.4 trillion UGX. It is one of our major competitive advantages. From that balance sheet size, ABSA Uganda is number three in the market. We achieved that ranking status last year.

We are already seven months into the year and like with any other institution, it is not over until it is over. Obviously, the positive thing from ABSA’s perspective is that we will still predict to end the year profitably. We have had some challenges, as has every other financial institution, but we remain cautiously optimistic that we will finish with our heads above water. I am quite confident that despite the business challenges and the slowdown in activity in comparison to the previous year, we should still come out in the black, which is quite a positive outcome. Where we do see a potential downside is around the impact of potential increase in impairments in comparison to the previous year as a consequence of the effects of the pandemic and the financial stress that it has caused on the economy and various institutions and individuals. Obviously, the impact of the pandemic has been such that the growth rates that were initially projected for Uganda have had to be moderated by at least 50%. Uganda is a country where the growth rate of the economy has been averaging over 5% for in excess of a five-year period. This year, for the first time in five years, we will be posting a growth rate from a GDP perspective predicted to end at 3.1% for the 2019-2020 year. For the ensuing year, the current estimates are that we should expect the economy to grow by about 3 to 4%, which is quite positive relative to the global economy that the World Bank predicts will decline by 4.9% in 2020. There is agreement that the outlook has some downside risks which include the continued persistence of the pandemic and the lack of discovery of a vaccine in the short term. Also, with respect to disruption in the supply chain and international trade, there will be effects incurred. As long as borders and airspaces continue to be closed, the rate at which the economy recovers will also be impacted. What is positive about Uganda is the fact that the outlook is optimistic in the sense that we are expecting the economy to grow driven by key sectors such as Agriculter,Manufacturing and retail and Wholesale trade. We still see some positive growth coming through in the banking sector in terms of credit appetite and liquidity growing. The industry remains very well-capitalized based on the statistics we see from a Central Bank It shows that the industry has been resilient thus far and it is predicted that up to the end of the year in 2021, the sector should remain resilient and respond to the challenges that have been posed to it. The Central Bank remains quite instrumental in supporting the sector and our clients to ensure that we are able to weather the storm. We remain cautiously optimistic that the pandemic will pass eventually. One of the positive things that may come in the future is that a vaccine will be discovered and the “curve” will be flattened in terms of new infections.

How will the transformation that you are implementing considering technology and going digital translate to your clients?

For us at ABSA, when we look at the customer, we want whatever contact they have with us to be an “experience”. Our focus in providing these digital solutions is to improve on the experience and convenience of the customer. Over this last quarter of the financial year, we have witnessed a drive towards digital adoption because at some point, the number of branches that were operational during this health crisis had to be scaled down and the operating hours had to be scaled down. This increase in digital adoption provided convenience as well as positive customer experience. The cost to serve through a digital channel is also much cheaper for the client depending on the nature of their transaction. From our perspective, we will be providing a better and more convenient customer experience that is more cost-effective overall in terms of time spent to generate or complete transactions. Ideally, you can do transaction from the comfort of your own home, car, office, etc. It is a big opportunity to provide convenience for our customers.

How can you move to find access to better and cheaper capital?

Typically, one form of cheap capital is attracting cheap deposits. Some of the most expensive deposits that a bank can access are fixed deposits. Ideally, you would want to access cheap financing which responds to your penetration of the banking sector in terms of tapping from the unbanked population. That should be able to drive cheaper volumes in terms of cheaper sources of financing. Other sources at times would be through the capital markets in operations where you are listed entities. However, speaking from ABSA’s perspective, right now, we are 100% owned by ABSA Group Ltd of South Africa. Group funding is also another source of funding. There are many options to find cheaper sources of financing. The primary one that a bank should target is one that comes through its own nationals in terms of the cheaper product settings in terms of the liabilities that a customer is holding.

What are your current major projects for the year?

2020 is a significant year for ABSA Uganda. The major milestone that we have achieved this year is that we concluded our complete separation from Barclays PLC in June. Various platforms that were housed outside of the UK have now been migrated to other centers, such as in South Africa and around the world. We have become a completely independent international pan African bank. From a client perspective, we have continued to provide innovative solutions. Recently, we introduced a vertical card which is a first in the Ugandan market. Historically, in Africa, the debit cards and credit cards were in a horizontal format. We were the first to market this vertical debit and credit card. We recently introduced contactless debit card functionalities which is also a first in the market. In the last quarter, we have introduced innovative forex solutions where we have developed an app that is internet based and linked to your bank account that can enable you to perform forex transactions using a mobile banking application. We have also introduced free mobile and internet banking access which we have partnered with one of our major mobile network providers on. This functionality gives you access to our apps and our internet banking options or facilities using your mobile phone with what we call “reverse billing.” This is useful In case you may not have data in terms of phone credit to enable you to log onto the internet to access your internet banking account or your mobile banking account, but with that reverse billing functionality, it gives you an opportunity to be able to access our services even if you do not have data. We have an arrangement with a mobile network operator on how we pick up those costs as we look driving convenience for our customers.

Project yourself to the medium term, three years’ time. What would you like to have achieved with ABSA Uganda and you within it?

We have a very strong balance sheet in excess of 3.4 trillion UGX. It is one of our major competitive advantages. From that balance sheet size, ABSA Uganda is number three in the market. We achieved that ranking status last year. Our revenues are ranking at number five in the industry. Our profitability ranks at number four. From a vision point of view, what I would want to achieve is first, from a customer experience perspective, I would want ABSA Uganda to be the most competitive and best retail and wholesale bank within the Ugandan market. Secondly, I would want ABSA Uganda to increase our market share to be one of the top three banks on most key financial performance matrices in Uganda within the next three years. That is where we rightfully should be playing. I also want to ensure that I am able to build a bank that all our employees can be proud of from both the market perception as well as a solution-oriented perspective. We want to be known as the bank that provides solutions for our clients’ needs and whose employees are proud to work for the brand.

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