Ugandan banks: Who’s winning or losing the battle against bad loans?

Uganda’s financial landscape is reflecting nuanced trends, as the latest data for 2024 reveals a significant decline in aggregate non-performing loans (NPLs) across the banking sector.

However, a deeper dive into individual bank performance shows that while overall asset quality is improving, several major players continue to grapple with substantial portfolios of distressed debt.

The total non-performing loans for key Ugandan banks in 2024 collectively amounted to Shs1019.03 billion, marking a notable reduction from the Shs1188.097 billion recorded in 2023. This decrease signals a positive shift, possibly influenced by stronger economic conditions, more robust debt recovery mechanisms, or a more cautious lending approach adopted by banks.

Despite this sector-wide improvement, the challenge of managing NPLs remains significant for certain institutions, as highlighted by their NPL ratios – the percentage of total loans that are non-performing.

Equity Bank continues to lead the pack in NPL ratios, recording a high of 16.62% in 2024. While its absolute NPL figure saw a reduction to Shs216.01 billion from Shs363.97 billion in 2023, its extensive loan book means a substantial portion remains at risk. This indicates persistent, underlying issues within its credit portfolio, necessitating continued vigilance in its recovery and risk mitigation strategies.

Similarly, Absa Bank Uganda maintains a significant NPL ratio of 10.64% in 2024. Interestingly, Absa’s absolute NPLs actually increased from Shs175.2 billion in 2023 to Shs211.8 billion in 2024, suggesting a widening crack in its asset quality despite the broader industry improvement. This trend for a bank of Absa’s stature will undoubtedly be a focal point for market observers.

Cairo Bank Uganda also stands out with a disproportionately high NPL ratio of 12.37% (Shs22.12 billion in NPLs against Shs178.9 billion in total loans for 2024), pointing to particular vulnerabilities within its lending segments. DTB Uganda also registered a considerable NPL ratio of 7.18%, reflecting a noteworthy share of its loan book experiencing repayment difficulties. Other banks such as KCB Bank (6.17%) and Housing Finance (6.44%) also show elevated NPL percentages, with the latter’s specialization in real estate making it sensitive to market fluctuations.

In contrast, several banks have showcased exemplary asset quality. Stanbic Bank, the largest financial institution in Uganda, demonstrates robust health with an exceptionally low NPL ratio of 1.41% in 2024 (Shs70.08 billion in NPLs against a massive Shs4970 billion in loans). This performance underscores effective risk management and stringent credit assessment. Equally impressive are Bank of Baroda and UBA Uganda, which reported NPL ratios of 0.21% and 0.55% respectively, reflecting very sound loan portfolios.

“The divergence in NPL performance highlights varying risk appetites, portfolio concentrations, and the effectiveness of recovery operations across Ugandan banks,” notes a senior financial analyst in Kampala. “While the overall reduction in NPLs is a positive macro indicator, investors and regulators will be closely scrutinizing the specific challenges faced by individual banks, particularly those with persistently high ratios. Their ability to clean up their loan books will be key to strengthening the stability and profitability of the sector.”

The banking sector’s performance in managing non-performing loans remains a critical barometer of economic health. As Uganda continues its recovery and growth trajectory, the sustained efforts of banks to improve asset quality will be paramount in fostering a resilient and trustworthy financial system.