Bank of Uganda.
A relatively stable inflation, clean loan book and increase in foreign currency loans are the key drivers of the projected growth, bank executives and analysts say.
Over the past year, the sector has been struggling to reduce the level of non-performing loans, which rose to 6 per cent of total loans in 2013 compared with 4.2 per cent in the year before due to volatile economic environment.
“We see a continuous recovery in the sector, though not yet running, but we can see some improvement in almost all the items being assets, local and foreign currency loans and deposits,” said George Mulindwa, head of business development at African Alliance.
“We expect 8 per cent to 10 per cent growth in the banking sector, though we are beginning to see a worrying perspective with the depreciation of the shilling due to the improvement of the US economy as people prefer to invest their cash in their own country than in the developing markets,” he added.
The Uganda shilling depreciated by close to 10 per cent last year against the dollar and 2.9 per cent during the first week of this year.
Mr Mulindwa said small and medium enterprises are rushing for loans in foreign currencies compared with the local currency because of lower interest rates ranging between 8 per cent and 10 per cent compared with 20 to 24 per cent for the local currency.
Sources in the sector said the strict assessment of borrowers by commercial banks last year through raising the bar in terms of requirements for those interested in loans and also writing some loans off where they cannot recover the funds are also the factors for the prospective performance.
Data from Bank of Uganda’s latest financial stability report shows that the country’s banking sector, comprising of 26 commercial banks, saw the total bank’s assets increase from Ush15.7 trillion ($5.5b illion) in June 2013 to Ush18.6 trillion ($6.5billion) at the end of June 2014.
Holdings of government securities grew by 29.6 per cent from Ush3.1 trillion ($1.08 billion) in June 2013 to Ush4 trillion ($1.4 billion) at the end of June last year.
Total loans and advances to the borrowers increased by 14.4 per cent to reach Ush8.8 trillion ($3.1 billion) at the end of June 2014.
Risk-weighted assets reduced from 66.1 per cent to 64.7 per cent between June 2013 and June 2014.
However, the profitability of the banking sector after tax reduced from Ush498.1 ($174.1million) in June 2013 to Ush358.8billion ($125.4million) in June 2014, mainly due to increase in bad debts by 72.5 per cent to Ush332.2billion ($116million) during the period under review.
READ: Banks record fall in number of bad loans, growth in personal lending
In addition, an increase in banks’ operating costs by 15.2 per cent or USh167.2 billion ($58.4million) during that period, largely in form of salaries, wages and staff costs, also contributed to the reduction in banks’ profits.
“Last year was a better year than 2013 for us, and we do look forward to a much more profitable year of 2015. The improvement is due to increased revenues across board and a clean loan book (minimal impairment),” said Michael Monari, managing director of Ecobank Uganda.
Centenary Bank managing director Fabian Kasi said this year banks expect to register growth compared with previous year on the back of improved economy, especially in the second half of 2014 and the tight loan requirements.
The East African
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