OPINION: 2017 Was an Interesting Year in the Banking Industry, 2018 Promises to be Even More Exciting

By Wilbrod Humphrey Owor

As the period for publication of bank financial reports gets underway, it is a good time to start sharing reflections on the year 2017.

The year began with continued slow credit growth resulting from spill-over effects of slow economic activity and high non-performing loans whose share to gross loans stood at 10.47 percent in December 2016.

The high non- performing loan (NPLS) ratios were also partly attributed agricultural shocks, delayed payment of domestic arrears, slow down on growth of the real estate sector, continued instability in South Sudan and Eastern DRC and an overall tough economic environment among others.

From preliminary results, total assets of the banking industry increased by 12% from Shs23.7 Trn to Shs26.5 Trn over the year to 31st December 2017.

All banks met the minimum regulatory capital adequacy requirements as at end of December 2017 and aggregate core capital and total regulatory capital ratios were at 21.1% and 23.4 % respectively.

Customer deposits grew by 12% from Shs16.2 Trn to Shs18.2 Trn but gross loans hardly grew by a marginal 1.5% from Shs11.5Trn to Shs11.7 Trn reflecting challenges in the credit space in spite of the monetary easing championed by the Central Bank during the year.

The key sectors of manufacturing, trade & real estate which constitute 12.6%, 18.7% and 20.5% of total industry lending respectively suffered heavily with trade and commerce registering a decimal growth of only 0.1%, while manufacturing and real estate actually slipped downwards by 1.1% and 2.9% respectively.


Banks exercised a lot of caution during the year and this effort dropped NPL ratios from the 10.5% of 2016 to 5.6% at end of December 2017.

The excess liquidity arising from the above is reflected in the liquid assets to total deposits ratio which increased from 42.5% to 54.6% over the year 2017 most of which was in investments in Government and Bank of Uganda Securities.

Bank holdings of BOU securities (Repos & deposit facility scheme) grew by 204.1% to Shs2.5Trn.

Overall the banking sector’s profitability improved significantly and average return on equity (ROE) and return on assets (ROA) improved to 16% and 2.7% respectively.

The major banking industry event of the year however, was the timely resolution of the Crane bank issue by Bank of Uganda without loss to depositors or contagion to the rest of the banking system.

The Purchase and Assumption agreement entered between Bank of Uganda and dfcu bank guaranteed smooth transition and integration of customers into dfcu bank who were able to access their deposits seamlessly, did ensure continued stability in the industry.

dfcu bank’s ability to mobilize USD50m at short notice to finance the transaction, followed by a successful rights issue, with 96% uptake, is a clear testament of the confidence investors have in Uganda’s financial sector.

It is this stability and confidence in the sector brought about by a combination of factors including consistency in monetary policy and regulatory frameworks that must continue to be applauded and reinforced.

The conversations today would be very different if depositors were unable to access their money and the exposure by other banks in the interbank lending market crystalized leading to what is called contagion (the communication of disease from one person or organism or institution to another by close contact).

The financial sector is in a way similar to blood pumped by the heart across the body.

An infection can be dangerous, poisonous and can bring infection to other body parts, an un-coordinated policy direction be it monetary or fiscal can lead to numerous un-intended consequences of catastrophic proportions.

Our own country has been through this path, and as a nation or group of institutions driving growth initiatives in the country, working together and harmonizing approaches must be the leading light ahead of us all the time.

The financial sector is a confidence industry that takes time to build and is measured by its resilience in the ability to absorb shocks.

It however depends on the millions of silent depositors who oil it with savings and turnover from various businesses, taxes, transactions collections, payments and a combination of instruments etc.

As policy makers or implementers, we must therefore constantly be alive to the impact of a policy signal to the financial sector.

Developing economies like ours must particularly be aware that we start from a very disadvantaged terrain with very low financial penetration and literacy levels anchored on a poor agrarian base.

The number of accounts in commercial banks increased from 4.5million in June 2015 to 7.4million in June 2017.

Although this represents a decent growth, it is low considering Uganda’s population of nearly 40 million people and is a far cry from the number of mobile phone accounts which is estimated to be over 23 million.

Our efforts must therefore be towards encouraging and bringing on board the biggest proportion of our population into the formal financial sector where monetary policy can be transmitted effectively by initiatives that increase access to financial services, financial penetration, increasing access to credit, productivity, and markets which automatically widens the tax base to finance further development.

The financial sector is adjusting to these priorities by adapting technologies that deliver services to previously underserved or completely unserved markets and segments of the population.

Banks are increasingly sharing infrastructure (creating synergies) to enable them lower costs of delivery by pooling resources and reducing redundancy and its attendant costs.

This allows for scalability, while focusing on introducing more and more services and products to address the needs of the various segments of the population.

This process is journey that requires many travellers and partners to join hands.

The new developments such as Agent Banking will go a long way in expanding financial services, lowering costs of delivery and bringing services closer to customers, most importantly those that are currently financially excluded.

In addition, Banks in collaboration with the regulator (Bank of Uganda) are working hard at increasing financial literacy initiatives and efforts to help reduce this barrier to use of banking and other financial services.

We call upon all stakeholders to join hands in ensuring financial sector stability, and its intended outcomes of penetration, deepening and growth.

As an industry, we embrace and will continue to support the national strategic objectives and vision therein and remain keen to work with the various agencies of government contributing to the development of the Country.

The writer is the Executive Director of Uganda Bankers Association (UBA) and also represents contributing institutions at the Deposits Protection Fund Board.

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