Bad 2016, gloomy 2017 for banks

Meanwhile, with a gloomy performance for the first six months of 2017 for banks, it is possible that if key fundamentals do not change, the 2016 bad fortunes for the financial sector would continue.

As the storm rages, Finance Minister Matia Kasaija is promising a major turnaround of the economy and counseling patience.

“There is something I am doing…just give me two years, this economy will have changed,”   Kasaija told participants at the African Tax Administration Forum (ATAF) organised by Uganda Revenue Authority and the African Development Bank in Kampala on Aug 15. It is not clear how many of his listeners believed him. But to hear a government minister express concern about the economy is a welcome departure from the usual denials.

Facts about financial sector performance (for the period January – December 2016) – source; Bank of Uganda

• Four on-site examinations of licensed MDIs was done
• Number of foreign exchange bureau outlets stood at 267 compared to 280 as at December 31 2015; money remitter’s number rose from 66 as at December 2015 to 69 in December 2016
• 17 new Forex Bureau outlets were licenced; but the licenses of 19 outlets were terminated and 11 outlets voluntarily exited the market
• Forex Bureau outlets faced lapses in cash management, reporting suspicious transactions, limited understanding of provisions of the Anti-Money Laundering Act, 2013 and Anti-Money Laundering Regulations, 2015
• If banks’ three largest borrowers were to default by 100% loan loss alongside increase in NPLs by 200%, 13 banks would become undercapitalised
• Number of bank branches decreased from 573 in 2015 to 570 in 2016; ATMs increased from 842 in 2015 to 860 in 2016
• Total of major assets increased from Shs 21.7 trillion in 2015 to Shs 23.7trillion in 2016
• Government securities grew from Shs 4.1 trillion in 2015 to 5.1 trillion in 2016
• Loans increased from Shs 10.8trillion in 2015 to Shs 11.5 trillion in 2016
• Customer deposits accounted for 81% of total liabilities; deposits grew at 9.5% in 2016, down from 12% in the year to December 2015
• Central bank rate reduced from 17% in December 2015 to 12% in December 2016; average lending rate for shilling loans reduced from 24.6% during December 2015 to 22.7% in December 2016
• Total income increased from Shs 3.1 trillion in December 2015 to Shs 3.6 trillion in December 2016
• Total expenses increased from Shs 2.2 trillion in December 2015 to Shs 3 trillion in December 2016

Facts about 2017 half year performance of banks

• Industry profitability dropped 4% compared to 18% recorded in same period last year
• Industry client loans and advances growth remained under 1%
• CBR reached lowest point of 10% (Jun2017) since its debut in July 2011
• Reduction in CBR did not spur growth in lending for key sectors like manufacturing, real estate and construction which remained in negative
• Unutilised credit limits in the industry sector exceeded Shs 1.7 trillion in June having moved from an average of Shs 1.2 trillion in 2015.
• Average lending rates in local currency dropped 2% between December 2016 and May 2017 – which is an estimated annualised impact of Shs 100 billion on interest income off a loan book of Shs 6 trillion.

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