Factors affecting non-interest income in commercial banks in Uganda: A case of commercial banks in Uganda

Abstract

The study examined the factors affecting non-interest income in Uganda’s commercial banks. The study was guided by specific objectives namely; to study the effect of deregulation and technological advances, analyze the effect of financial performance of commercial banks and analyze the significance of market conditions like globalization, and bank sector penetration on Non-interest income in commercial banks in Uganda. The study adopted an empirical time series study designed using secondary data in from returns sent to Bank of Uganda by the licensed commercial banks operating between financial years of 2000 and 2007. In measurement of variables, risk adjusted performance, productivity, globalization, sector concentration as well as deregulations and technological advancements were considered. The study used Multivariate analysis using a regression model adopted from DeYoung and Rice (2003). Findings reveal that despite the rise in aggregate levels of non-interest income in Uganda, its relative percentage share to total income for the industry was averaging 32.45 % annually over the period under review. There was a significant effect of globalization and financial performance on overall Net non interest income. Findings further suggested no significant effect from both technological advances and sector concentration to non interest income. In conclusion, though the growth of non-interest income in Uganda’s banking industry was trending upwards, net non interest margin analysis indicated that the industry still suffers a loss which means the cost of raising total non interest income is high. It is therefore, recommended that commercial banks in Uganda need to cut or effectively control their operating cost to enhance the financial performance of the industry.