Ugandan Banks harvest UGX 1.4 trillion in net profits as assets grow to UGX 53 trillion- Bank of Uganda data

Latest data from Bank of Uganda (BOU) shows Ugandan banks and other supervised financial institutions, remain profitable and adequately capitalised following a surge in net-after-tax profit to UGX 1.4 trillion registered for the Financial Year ending June 2024. 

The UGX 1.4 trillion is higher than the UGX 1.3 trillion registered in the year to June 2023, showing an increase by a billion shillings.

The data is based on the BOU annual report published at the end of October. BOU noted that the net earnings in the review period were mainly driven by increased interest income and a reduction in provisions for bad debts, although interest expenses were elevated for some financial institutions that registered high cost-of-deposit ratios. 

The performance of supervised financial institutions (SFIs) improved in the year to June 2024, owing to improved macroeconomic conditions and stronger liquidity and capital buffers in the banking sector. Total assets for financial institutions grew by 8.4 percent from UGX 49.7 trillion as at 30 June 2023 to UGX 53.9 trillion as at 30 June 2024. 

The increase in assets was mainly driven by holdings of government securities (UGX 15 trillion), loans (UGX 23 trillion) and deposits (4 trillion) in foreign financial institutions which increased by 10.1 percent, 6.8 percent and 33.2 percent. 

Specifically, assets for Commercial Banks (CBs) and Microfinance Deposit-taking Institutions (MDIs) grew by 8.9 percent and 2.1 percent to UGX 52.6 trillion and UGX 882.6 billion respectively. However, credit institutions (CIs) recorded a reduction of 21.5 percent in assets from UGX 490.6 billion to UGX 385.2 billion, following the closure of Mercantile Credit Bank Limited on 18 June 2024, which accounted for 26.7 percent of credit institutions’ assets as at that date. 

On the liabilities side, financial institutions continued to be mainly funded by deposits, which grew by 4.2 percent from UGX 35 trillion to UGX 36.4 trillion in the year ended June 2024 and accounted for 83.2 percent of total liabilities. The growth in deposits was mainly on account of savings and time deposits which increased by 4.7 percent and 5.7 percent while demand deposits grew by 3.2 percent.

Lending activity by financial institutions improved in the year to June 2024, with loans growing by 6.8 percent from UGX 21 trillion to UGX 22.6 trillion, higher than 5 percent recorded in the previous year to June 2023. 

This growth was mainly attributed to increased net credit extensions which amounted to UGX 1.3 trillion for the year ended June 2024, compared to UGX 650 billion for the year ended June 2023. 

Overall, credit growth remained below the long-term trend and projected growth target of 13 percent. This moderate growth partly reflects a measured response by financial institutions and borrowers in adapting to the tight financing conditions during the period. 

On a positive note, asset quality improved and the aggregate ratio of non- performing loans to total gross loans (NPL ratio) reduced from 5.8 percent as at 30 June 2023 to 4.9 percent as at 30 June 2024, with NPLs declining across most sectors, notably for the business services and real estate.

 The outlook for credit conditions is of increased lending and improved asset quality as the effects of monetary policy easing by BOU pass through to the real sector.

Indicators showed that financial institutions continued to hold sufficient liquidity buffers against shocks. The aggregate financial institutions’ liquid assets increased by 10 percent to UGX 17.5 trillion. 

As a result, the industry ratio of liquid assets to deposits (liquidity ratio) increased from 45.7 percent to 46.8 percent, with all supervised financial institutions meeting the regulatory minimum of 20 percent.

Similarly, the aggregate Liquidity Coverage Ratio (LCR) for commercial banks and credit institutions increased from 239.6 percent to 371.6 percent, relative to the required minimum of 100.0 percent, signaling the sufficiency of their high-quality liquid assets to withstand a 30-day liquidity stress period.