Uganda Central Bank Says Lenders’ Asset Quality Still a Concern

KAMPALA (Capital Markets in Africa) – The asset quality of Uganda’s banking sector “remains a concern,” even as the country’s 24 commercial lenders reduced the amount of non-performing loans in the past fiscal year and were able to record higher profits, the Bank of Uganda said.

The ratio of non-performing loans to total loans declined to 4.4 percent in the 12 months through June from 6.2 percent a year earlier, but “credit quality could be affected by indirect market risks arising from interest-rate policy expectations in advanced economies,” the central bank said in its Financial Stability report published on its website.

At the macro-economic level, 2018-19 could see a build-up in risks, “especially from rising inflationary pressures driven by oil prices, and domestic risks arising from the increasing fiscal deficits and exchange rate volatility.”

Key Insights

• Total bank assets grew to 27.4 trillion shillings ($7.3 billion) from 24.8 trillion, “driven mainly by a pickup in lending, investment in government securities and placements with non-resident financial institutions.”
• Annual loan growth rose to 11 percent to 12.2 trillion shillings.
• Non-performing loans decreased by 136.8 billion shillings. “Annual write-offs remained historically high but reduced to 246.5 billion shillings from 289.1 billion shillings.”
• The value of mobile-money transactions grew 38 percent to 73.1 trillion shillings.

Outlook

• The Bank of Uganda’s leading business indicator shows optimistic expectations for agriculture, construction, manufacturing and trade.
• “Increased economic activity is expected to enhance the balance sheets of companies and households and thus contribute positively to improved asset quality.”

“However, further increases in interest rates could heighten credit-default rates. In addition, the IFRS 9 accounting standard, which came into effect in January 2018, could lead to an increase in provisioning for expected losses, which could then pass through to bank profitability and capital.”

Source: Bloomberg Business News