KAMPALA, October 18, 2023 – Total assets held by Credit Institutions (Cis) grew by 10.2 percent to Shs490 billion at the end of June 2023 from Shs445.3 billion at the end of June 2022, according to the latest Bank of Uganda (BoU) Annual Report 2022-2023.
The BoU report attributes the growth of total assets of the CIs to an increase in loans and advances by 8.9 percent to Shs280.7 billion and placements with commercial banks in Uganda by 73.1 percent to Shs70.4 billion, over the review period.
Further, the report says, the aggregate core and total capital to risk-weighted assets ratios of CIs in Uganda improved to 18.6 percent and 19.5 percent from 12.4 percent and 13.3 percent, respectively, well above the regulatory requirements.
On the other hand, the report says customer deposits contracted by 2.3 percent to Shs243.3 billion, mirroring a period of tightened liquidity for CIs. ‘In line with this trend, the CIs’ NPL ratio worsened from 6.1 percent in June 2022 to 8.3 percent in June 2023, partially attributable to the challenging macroeconomic environment and a deterioration in the repayment capacity for micro borrowers,” says the report.
Tier III – Microfinance Deposit-taking Institutions
According to the report total assets of Microfinance Deposit-taking Institutions (MDIs) marginally increased by 14.7 percent to Shs864.4 billion at the end of June 2023, largely due to a 15.8 percent increase in gross loans and advances.
Despite an improvement in the MDIs’ NPL ratio from 6.8 percent to 5.7 percent, the report says aggregate core capital–to–risk weighted assets and total capital–to–risk weighted assets ratios reduced from 38.6 percent and 41.3 percent in June 2022 to 34.8 percent and 37.5 percent in June 2023. “This reduction was partly due to the introduction of Basel’s operational risk requirements for SFIs’ capital, emphasizing the necessity of robust capital buffers in counteracting operational risks.”
BoU onsite examinations unearth rot in financial institutions
Throughout the year, the report says, BoU carried out onsite examinations at several banks, unearthing some shortcomings. “Identified shortcomings ranged from poor risk management practices and governance lapses to outdated banking systems and a high rate of staff turnover.”
The report adds: “Concurrently, a pilot run of the revised risk-based supervision framework highlighted operational and credit risks, vulnerabilities in digital platforms, insufficient core banking systems, and corporate governance deficiencies. These observations underscore the need for reinforced strategic planning, risk management, and corporate governance across all SFIs.”
The report says BoU has, in response, issued specific time-bound directives to these institutions to rectify the identified areas of concern.