The banking sector in the EAC region registered strong growth as at end March 2019 where total assets for commercial banks had grown by 9.7 percent to US$70.6 billion, compared to an increase of 5.4 percent in the year to March 2018, according to the Bank of Uganda Financial Stability Report for June 2019 which quotes EAC Monetary Affairs Committee as the source of the data.
The report released on Tuesday attributes the growth in assets to improved macroeconomic performance and accommodative monetary policy in the region.
The regional banking sector was profitable on the whole, owing mostly to increased lending activity. The average return-on-assets ratio rose from 2.1 percent to 2.5 percent between March 2018 and March 2019.
In addition to boosting profit buffers, the sector remained well capitalised during this period, supported by robust Macroprudential regulation and supervision. As at end March 2019, the average core capital adequacy ratio for the region stood at 18.6 percent, which is well above the regulatory minimum requirement of 10 percent.
Credit growth improves
Credit growth improved across the region, mainly on account of eased supply-side constraints and increased aggregate demand. On average, credit to the private sector grew by 11.3 percent in the year to March 2019, compared to 6.2 percent in the previous year.
Credit risk, as measured by the ratio of non-performing loans to gross loans (NPL ratio), was moderate in the region during the period under review. Changes in the sector’s asset quality were mainly attributable to delayed government payments to suppliers and inadequate credit underwriting.
NPLs decline
The average NPL ratio for the region reduced from 10.3 percent in March 2018 to 8.6 percent in March 2019. However, Kenya’s banking system registered a significant rise in credit risk as the NPL ratio increased from 11.8 percent to 12.8 percent, despite the low interest rate environment and recovery in lending activity.
Credit risk, as measured by the ratio of non-performing loans to gross loans (NPL ratio), was moderate in the region during the period under review.
Changes in the sector’s asset quality were mainly attributable to delayed government payments to suppliers and inadequate credit underwriting. The average NPL ratio for the region reduced from 10.3 percent in March 2018 to 8.6 percent in March 2019.
However, Kenya’s banking system registered a significant rise in credit risk as the NPL ratio increased from 11.8 percent to 12.8 percent, despite the low interest rate environment and recovery in lending activity.
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