Assets for commercial banks 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 in the last financial year, the Bank of Uganda annual report shows.
According to the Bank of Uganda report for FY2023/24, 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 SFIs’ assets 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, loans and SFIs’ deposits in foreign financial institutions which increased by 10.1 percent, 6.8 percent and 33.2 percent to UGX 15 trillion, UGX 22.6 trillion and to UGX 4.17 trillion, respectively,” the report reads in part.
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 CIs’ assets as at that date.
On the liabilities side, SFIs continued to be mainly funded by deposits, which grew by 4.2 percent from UGX 35.0 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.
The report notes that lending activity by SFIs improved in the year to June 2024, with loans growing by 6.8 percent from UGX 21.0 trillion to UGX 22.6 trillion, higher than 5.0 percent recorded in the previous year to June 2023.
“This growth was mainly attributed to increased net credit extensions which amounted to UGX 1,338.0 billion for the year ended June 2024, compared to UGX 650.1 billion for the year ended June 2023,” the report states.
Overall, credit growth remained below the long-term trend and projected growth target of 13.0 percent. This moderate growth partly reflects a measured response by SFIs and borrowers in adapting to the tight financing conditions during the period.
On a positive note, asset quality improved, and the aggregate ratio of NPLs to total gross loans (NPL ratio) reduced from 5.8 percent as of 30 June 2023 to 4.9 percent as of 30 June 2024. NPLs declined across most sectors, notably business services and real estate.
“The outlook for credit conditions is increased lending and improved asset quality as the effects of monetary policy easing by BOU pass through to the real sector,” the report states.
