The banking sector, on aggregate, held strong capital buffers in the year to December 2020, maintaining resilience to potential shocks, Bank of Uganda’s Quarterly Financial Stability Review December 2020 released in March this year has revealed.
According to the report, the aggregate core capital-to-risk-weighted assets ratios for commercial banks, MDIs and credit institutions were 20.5 percent, 35.4 percent and 16.1 percent, respectively as at December 2020, well above their respective statutory minima of 10 percent, 15 percent and 10 percent.
However, overall banking sector profitability declined in the year to December 2020.
“The annual net-after-tax profit for commercial banks declined from USh.883.4 billion (in 2019) to USh.844.3 billion (in 2020), while credit institutions registered a consolidated loss of USh.8.7 billion (in 2020) from a profitable position of USh.1.5 billion reported for the year 2019,” the report obtained by Business Focus reveals.
On the other hand, says the report, MDIs recorded strong earnings during the period under review as their aggregate net-after-tax profit increased from USh.5.1 billion in 2019 to USh.19.8 billion in 2020.
The report reveals that the average cost-to-income ratio for all banking institutions rose from 86.1 percent in 2019 to 92.2 percent at the end of 2020, due to a rise in operating costs.
“All systemically important payment systems – the Uganda National Interbank Settlement System, Central Securities Depository and the Automated Clearing House – remained resilient and operated without significant disruptions during the quarter ended December 2020,” the report reads in part.
The report adds that the necessary COVID-19 standard operating procedures (SOPs) have continued to affect Supervised Financial Institutions’ (SFIs) operations, resulting in heightened operational risks.
“This has been manifested in disrupted operations at some branches, requirements for enhanced business continuity planning and increased banks’ cost-to-income ratios,” it reads.
It adds that the use of digital channels for financial services continued to grow strongly during the year to December 2020.
“In this period, the value of internet and mobile banking transactions rose by 30.2 percent and 135.2 percent respectively. At the same time, the value of mobile money transactions grew by 28.2 percent to USh.93.7 trillion, compared to 2.9 percent in 2019,” the report says.
It adds: “Over the quarter ended December 2020, the mobile money escrow account balances increased by 42.9 percent to USh.1,083.4 billion.”
BoU says it supports the growth of digital financial service delivery and continues to engage SFIs to address the associated cyber risk, potential exposure to fraud and operational risk.
“For example, in October 2020, a mobile money fraud effected through a mobile money aggregator affected several banks with potential financial losses of USh.4.4 billion. While the final report of the investigation is yet to be availed, the affected banks have initiated enhancements to their processing systems, as a risk mitigation measure,” says the report.
