The Governor Bank of Uganda, Emmanuel Mutebile, has said the performance of Supervised Financial Institutions was not adversely affected by the pandemic induced disruptions to economic activity citing marginal increase in the profitability of Commercial Banks by 6.37 percent to Shs.855 billion.
He attributed this to Bank of Uganda’s interim preventive measures saying that within its mandate, the central bank, took appropriate action to moderate the likely impact of the pandemic on the performance of Supervised Financial Institutions in particular, and the financial system as a whole.
This was contained in the 2020 Bank of Uganda Annual Supervision Report published inform the public about issues relating to prudential regulation, supervision of Uganda’s Financial Institutions, and developments in the financial sector subject to its mandated supervisory function.
Supervised Financial Institutions (SFIs) are comprised of Commercial Banks, Credit Institutions, Microfinance Deposit taking Institutions, Foreign Exchange Bureaus, and Money Remitters which are licensed and regulated by the Bank of Uganda. The five chapter report highlighted Bank of Uganda’s supervisory actions, developments in the financial sector, performance of the banking sector, payment system oversight and credit relief measures.
The report cited considerable increase in the total volume of EFT transactions (Electronic Fund Transfer) by 2.7 percent to 10.5 million and explained that this increase was due to “efforts by banks and the government to promote use of electronic payments and maintain physical distance to control the spread of COVID-19.
Accordingly, a significant rise in the volumes and value of mobile money operations was registered as being 24.1 percent growth in volume to Ush3.5 billion whereas value grew from Ush 73 trillion to Ush. 93.7 trillion. The report further stated that; of the 30.7 million registered customers, 19.8 million are active.
Also in mention were regulatory developments in the financial sector such as the new regulations for large SACCOs which were drafted basing on legal opinion from the Attorney General and currently await approval for publication.
Regarding credit, the report cited 5.3 percent increase in the ratio of Non-Performing Loans to total loans of commercial banks adding that this was on the back of weak economic activity hampered by the onset of the COVID-19 pandemic which adversely affected the income of borrowers.
Going forward, the report noted at expectation that the slow pace of loan recovery is likely to continue negatively affecting loan quality until economic activity is stronger. However, Mutebile refused to dwell on the increase in NPLs saying, “A significant number of financial institution consumers were able to benefit from the credit relief measures”. This, in their assessment, moderated the impact of the COVID-19 pandemic on households and firms”.
The report was concluded by highlighting that supervised financial institutions suffer a number of risks such as credit, operational, market and liquidity risks, which require effective management.