BANKS CONTINUE TO PULL OUT OF COVID SLUMP

Uganda’s banking industry continues to grow across all measures but slower than last year in a trend experts suggest, is explained by the opening of the economy in 2021 from the total lock down of 2020.

In 2022 total assets grew 11.2 percent to sh46.1 trillion in 2022 from sh41.4trillion in the previous year. In 2021 assets grew 16.8 percent compared to 2020.

While loans and advances grew 11.1 percent almost level with 2021there was a marked slow down in growth of government securities. In 2022 these grew 35.5 percent compared to 57.73 percent in the previous year, this was result of government trying to cut back on its borrowing from the public more than a shift of emphasis to more private sector lending.

Observers have often complained that the government was crowding them out of the market by continuing to borrow at high rates from the public using its government securities. A slow dow in growth in this market may point to good things ahead for private borrowers.

Customers deposits held by the industry continued to grow, jumping 12 percent last year a slower rate than the previous year when they were up almost 15 percent.

"Net profits after tax declined marginally by 1.9 percent an improvement from 2021 when they dropped almost six percent...

The improvement was due largely to a slow down in bad loan provisioning which while there was a 45 percent growth in provisioning it was much better than the near doubling of provisions for bad loan in 2021 compared to 2020.

In addition, an indication that the sector continues to shake off the hangover from the covid lockdown, the sector’s ability to withstand shocks improved as indicated by a 24.9 percent improvement in the total capita ration compared to last year’s 23.5 percent improvement.

The industry continues to struggle with forcing the costs down as cost to income ratio went up to 71.1 percent in 2022 compared to 68.8 percent, largely due to and 16.2 percent increase in operating expenses across the industry. This has a bearing on the cost of lending and may signal a reluctance this year to lower lending rates, among other signals.

Agency banking continued to gain traction ad total transactions jumped to 9.16 million n 2022 from 8.21 million the previous year.  This was driven by an increase in agents to more than 7000 from about 6,000 active agents in 2021. Since its inception four years ago agency banking has helped banks reach further afield with minimal costs.

"With economic growth projected for about five percent this year, the industry expects a continuation of past trends where profitability normally doubles GDP growth. The industry further expects that with reopening of China the wholesale and retail segments of the economy, which took  a massive hit during the lockdown, will bounce back strongly giving a further boost to the sector’s profitability. A cooling off of inflation will also help...

There are concerns that bad loans will weigh down their balance sheets as the restructuring of loans in response to covid begin to come due. The relief was merely a postponement of the obligations abut not a wipe out.

New capital requirements that will see banks boosting their paid-up capital to sh150b from sh25b may very well see some bank mergers and capital inflows coming in to beat the end-June deadline.

The sector results for which the banks stopped finished reporting in April, indicate that growth continues in the sector and suggests the sector is going some way to shaking off the Covid blues.

For the man on the street we can expect bank services to continue coming closer to us either through agency banking and/or on our mobile devices. The paring back of costs that this suggests should give us hope of lower lending rates some time in the future, as long as government reduces its reliance on open market operations to fund the budget...

We want the banking industry to thrive, if only so they can better play their mediation role and increase the efficiency of mobilizing funds in the market. An increase in customer deposits,  a lowering of government appetite for public borrowing and stronger balance sheets will force the industry to be more innovative with its products and even lower borrowing rates.

We will continue to wait in anxious hope for the day.