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Stanbic Uganda Holdings Ltd, Centenary Bank, and Absa Bank Uganda accounted for 60% of the industry’s aggregate profit
Kampala, Uganda | THE INDEPENDENT | Uganda’s supervised financial institutions including commercial banks, micro-deposit-taking institutions (MDIs), and credit institutions, recorded a combined profit of Shs1.4 trillion for the year ending June 2024, a slight 1% increase from the previous year, despite challenging economic conditions and the closure of two financial institutions.
The rise in profitability was largely driven by increased interest income, improved asset quality, and reduced provisions for bad debts, according to the Bank of Uganda’s annual report for the 2023/24. However, some institutions faced elevated interest expenses due to high cost-of-deposit ratios.
South Africa’s Standard Bank’s subsidiary in Uganda, Stanbic Uganda Holdings Ltd (SUHL), Catholic owned Centenary Bank, and Absa Bank Uganda accounted for 60% of the industry’s aggregate profit.
SUHL, the country’s largest financial institution by assets, posted a 15.2% increase in profit after tax, reaching Shs412 billion. Centenary Bank saw a 19% rise, with profits after tax totaling Shs297 billion, while Absa Bank Uganda registered a 15.6% growth, recording Shs146 billion in profit after tax.
Michael Atingi-Ego, the deputy governor, Bank of Uganda said in a statement that financial institutions maintained adequate liquidity and capital buffers, ensuring their capacity to meet regulatory standards and withstand shocks.
“The banking sector remained profitable, well-capitalised, and compliant with revised minimum capital requirements,” he said.
“Moreover, Uganda’s removal from the Financial Action Task Force (FATF) grey list, following a thorough assessment, was a significant achievement that reaffirmed our commitment to strengthening the country’s Anti-Money Laundering and Combating the Financing of Terrorism framework.”
Asset growth and lending activity
Total assets within Uganda’s financial institutions grew by 8.4%, rising from Shs49.7 trillion to Shs53.9 trillion in June 2024. The increase was attributed to greater holdings of government securities, loans, and foreign deposits by financial institutions.
Government securities saw a 10.1% rise to Shs15 trillion, while loans increased by 6.8% to Shs22.6 trillion. Deposits in foreign financial institutions grew by 33.2%, reaching Shs4.17 trillion.
Commercial banks led asset growth, with an 8.9% increase to Shs52.6 trillion, while microfinance deposit-taking institutions (MDIs) saw a 2.1% rise to Shs882.6 billion.
However, credit institutions experienced a 21.5% drop in assets, primarily due to the closure of Mercantile Credit Bank Limited in June 2024, which had previously held over a quarter of CI assets. Similarly, EFC Uganda Limited, a microfinance deposit-taking institution, was liquidation by the central bank citing capital inadequacy and poor governance.
On the liabilities side, deposits remained the primary source of funding for financial institutions, growing by 4.2% to Shs36.4 trillion. The increase was driven by a rise in savings and time deposits, which grew by 4.7% and 5.7%, respectively.
Lending activity also showed improvement, with loans growing by 6.8%, higher than the 5% recorded in the previous year. Net credit extensions more than doubled from Shs 650.1 billion to Shs 1.34 trillion. However, overall credit growth remained below the long-term trend, reflecting the cautious approach by both financial institutions and borrowers amid tighter financing conditions.
Improved asset quality and liquidity resilience
Uganda’s financial institutions also reported improved asset quality. The ratio of non-performing loans (NPLs) to total gross loans dropped from 5.8% in June 2023 to 4.9% in June 2024, with notable improvements in the business services and real estate sectors.
In addition, liquidity buffers across the sector increased, with the aggregate liquid assets rising by 10% to Shs17.5 trillion. The liquidity ratio grew from 45.7% to 46.8%, ensuring that all financial institutions met the regulatory minimums. The liquidity coverage ratio (LCR) for commercial banks and credit institutions jumped from 239.6% to 371.6%, well above the required minimum of 100%, reflecting their ability to withstand liquidity shocks.
Outlook for the sector
The country’s credit conditions are expected to improve further, driven by monetary policy easing by the Bank of Uganda. Additionally, with institutions holding sufficient liquidity buffers and maintaining strong capital adequacy, the sector is well positioned for continued growth.
The aggregate capital adequacy ratio (CAR) stood at 25.5%, with a tier 1 capital ratio of 24.2%. Interestingly, all banks and credit institutions met the regulatory minimums, while three financial institutions –ABC Capital Bank, Guaranty Trust Bank and Opportunity Bank – opted to move from Tier I to Tier II during the year, in line with their business strategy and capital planning to meet the central bank’s new capital requirements.
