A trader rings the closing bell at the Uganda Securities Exchange in Kampala, Uganda. (Photographer: Trevor Snapp/Bloomberg)

Uganda Central Bank Says Lenders' Asset Quality Still a Concern

(Bloomberg) -- 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.”

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