Uganda bank profits rose 27% in 2021 amid pandemic concerns
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Loading... - Ruby Omary
- 14 Jun 2022
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Uganda bank profits rose 27% in 2021 from the previous year as the economy partially recovered, but the industry’s future faces uncertainty due to the ongoing Russia-Ukraine conflict and the surge in commodity prices.
The industry posted Shs 1.07trillion in profits in 2021, a sharp increase from Shs 846.2 billion in the previous year driven by income from investments in government securities and loans, according to the Bank of Uganda’s latest Annual Supervision Report.
The ratio of non-performing loans was largely unchanged between 2020 and 2021 at 5.27% versus 5.26% respectively.
BOU Deputy Governor, Michael Atingi-Ego, said the banking industry remains resilient though tightening of monetary policy, supply-side shocks and rising commodity prices could have a spillover adverse effect on the country’s financial system.
BoU early this month raised the central bank rate by one percentage point to 7.5% for the first time in the last two years to tame inflation that had jumped to 6%, one percentage above the usual annual target.
Similarly, Credit Institutions or Tier II financial institutions’ net profit improved from Shs14.7billion loss in 2020 to Shs 4.3 billion profit last year.
On the other hand, the microfinance deposit-taking institutions (MDIs)’ net profit reduced from Shs 33.9 billion to Shs 36.8 billion loss over the same period under review following a 71.5 percent increase in provisions for bad loans due to the impact of the COVID-19 pandemic on micro borrowers.
“Going forward, the main risk to supervised financial institutions’ (SFIs’) profitability remains the potential increase of non-performing loans and provisions as SFIs’ loans may become permanently impaired as a result of the effect of the pandemic on economic activity,” BoU said in the report.
Private sector credit up
The industry’s credit growth continued to recover during the year but remained moderate. The total loans by all the supervised financial institutions grew by 6.3 percent to Shs18.4 trillion in the year to end-December 2021, compared to the 12.6 percent growth over the period ended December 2020.
Banks registered the strongest growth in credit during the year at a rate of 8.8 percent, to 17.7 trillion as MDIs registered a 2.3 percent growth in loans advanced. Credit institutions, meanwhile, saw loans advanced contract by 58.4 percent following the upgrade of Post Bank to a commercial bank.
Loans to all sectors increased except to the business and social services sectors where credit contracted by 6.2 percent and 11.7 percent respectively.
But BoU hopes that reopening of the economy is expected to support recovery in credit intermediation, with improving demand for credit by borrowers and easing risk aversion by supervised financial institutions. Read More…
