BoU Governor, Prof. Emmanuel Tumusiime-Mutebile
In the year to June 2020, Uganda’s commercial banks registered strong growth in assets, despite the emergence of several shocks including the COVID-19 pandemic, Bank of Uganda’s recently released Annual Report for 2019/20 has revealed.
“The total assets of the banking sector increased by 18.2 percent, from UGX 30.3 trillion in June 2019 to UGX 35.8 trillion in June 2020. Asset growth was mainly on account of a rise in gross loans and advances by 14.0 percent from UGX 13.6 trillion in June 2019 to UGX 15.5 trillion in June 2020,” the report obtained by Business Focus reveals.
“In addition, banks’ holdings of government securities rose by 16.0 percent to UGX 7.7 trillion over the same period. On the liabilities side, customer deposits rose by 21.4 percent from UGX 21.0 trillion to UGX 25.5 trillion over the year ended June 2020,” the report adds.
On aggregate, the report says, the banking sector remained adequately capitalized with the aggregate industry total capital to risk weighted assets ratio and core capital to risk weighted assets ratio at 22.9 percent and 21.0 percent respectively as at end of June 2020, well above the respective minimum capital adequacy requirements of 12 percent and 10 percent.
“In addition, the banking industry maintained adequate liquidity buffers, with the ratio of liquid assets to deposits standing at 49.1 percent as at end of June 2020, an improvement from 45.5 percent as at end of June 2019 and well above the regulatory minimum of 20 percent,” the report reads in part.
However, asset quality of commercial banks deteriorated over the year ended June 2020.
“The aggregate industry ratio of non-performing loans to gross loans rose from 3.8 percent to 6.0 percent. The stock of non-performing loans increased by 73.5 percent from UGX 515.1 billion in June 2019 to UGX 899.5 billion in June 2020, partly driven by the slowdown in economic growth and shocks to households and businesses from the COVID-19 pandemic,” the report says.
Notable though, is that the four domestic systemically important banks (D-SIBs) which account for 51.0 percent of total banking sector assets, continued to be adequately capitalized, had sufficient liquidity buffers and reported profits for the period under review, the report adds.
Bank of Uganda identifies D-SIBs annually, based on a framework designed benchmarked on the indicators-based approach by the Basel Committee on banking supervision.
The report adds that the COVID-19 has elevated credit risk levels hence heightening vulnerabilities to banks’ earnings and organic capital growth.
“To mitigate this risk, BoU issued risk management guidelines to commercial banks and other supervised financial institutions (SFI) intended to minimize the effects of the pandemic and to strengthen risk management practices in the financial system,” the report says.
During the year to June 2020, the report says, Bank of Uganda concluded the liquidation of International Credit Bank Limited and Global Trust Bank Limited.
“This was a major achievement and was also an important step in complying with the recommendations of the Parliament of Uganda following the special audit of the closure of banks by the Committee on Statutory Authorities and State Enterprises (COSASE),” the report says.
It adds: “Furthermore, on September 10 2019, the Constitutional Court lifted the court injunction that had been placed by the shareholders of the National Bank of Commerce against Bank of Uganda (Constitutional Application No.38 of 2012), whereupon BoU commenced the liquidation process of National Bank of Commerce. The liquidation process is currently on course.”
