The Bank of Uganda (BoU) Governor, Prof. Emmanuel Tumusiime-Mutebile has revealed that Uganda’s banking sector is improving steadily supported by the recovery in economic growth.
He made the remarks during Uganda Bankers Association (UBA) Informal Dinner held on Friday at Golden Tulip Hotel, Nakasero.
“I am pleased to report that the end-June 2018 data indicated continued strengthening of the financial performance of the banking industry in Uganda. In particular, the ratio of non-performing loans to total loans in the banking industry reduced further from 5.3 percent at end March 2018 to 4.4 percent at end-June 2018,” Mutebile said.
He added: “…the banking industry’s cost to income ratio registered a measured reduction, while after tax return on assets rose marginally. We have now observed five consecutive quarters of improving financial performance among banks, driven primarily by stronger loan quality. As such, we can say that the rise of non-performing loans that hit the banking sector in 2016 has abated.”
He explained that the banking industry has strong capital and liquidity buffers, which provide a solid platform for expanding intermediation in the year ahead.
“Indeed, the annual growth of bank lending to the private sector accelerated to double digit rates in the second quarter of 2018, for the first time since 2015,” he said.
Speaks Out of dfcu situation
Mutebile noted that dfcu Bank has recently been subjected to a series of false allegations in the social media and online publications, concerning changes in its ownership structure, governance, and liquidity position.
“These false allegations sought to malign the bank. Fortunately, they have failed. dfcu Bank’s operations have progressed normally and the bank remains in a strong liquidity position,” Mutebile said, adding: “Nevertheless, this most regrettable episode demonstrates the need to build resilience to reputational risk by widening and deepening the moats (defences) for protecting public confidence in the banking system, especially in the current age where falsehoods spread rapidly through digital channels.”
He added that the directors and management of financial institutions must prioritize reputational risk management, not least by developing proactive communications strategies with effective crisis control measures as well as the capacity to thwart fake news.
“And because prevention is better than cure, I urge all members of UBA to maintain strict adherence to the Code of Good Practice, particularly by avoiding negative references to competitors while marketing specific banking services and products. We are all aware of the reputational damage suffered by several major financial institutions in the industrial economies as a result of misconduct by their staff, such as in the LIBOR fixing and the miss-selling of mortgages scandals in Europe and the United States,” Mutebile said.
He concluded: “I wish to reiterate that after a difficult period in 2016, economic growth has rebounded, inflation is low and stable, and the overall performance of the banking sector has improved. Therefore, I believe that we have strong grounds to be optimistic about the future of our banking industry; especially if we remain vigilant and resilient against the emerging risks.”