Uganda’s financial sector remains stable as systemic risks ease, says Central Bank

KAMPALA, June 2025 – Uganda’s financial sector remains stable, resilient, and well-capitalized, with systemic risks easing amid an improving macroeconomic environment, the Bank of Uganda (BoU) has reported in its mid-year Financial Stability Review.

The central bank noted that improvements in liquidity, stronger capital buffers, and prudent supervision have helped the banking system withstand external and domestic shocks.

According to the report, the overall risk outlook for the sector remains moderate and contained, buoyed by steady economic recovery, lower inflation, and relative exchange rate stability. “The banking sector continues to demonstrate strong resilience and capacity to absorb shocks, supported by adequate capital and liquidity buffers,” the BoU said.

The central bank highlighted that macroeconomic risk has remained low, aided by robust domestic demand, declining inflation within the policy target, and stable exchange rate conditions. These factors collectively contributed to a more favorable financial landscape and sustained investor confidence.

Credit risk, while still moderate, has also eased slightly. Loan growth across the banking system has remained positive, albeit at a slower pace than historical trends. The BoU credited this to prudent lending practices, improved borrower quality, and a generally healthy macroeconomic backdrop. Asset quality metrics have remained steady, suggesting limited stress in the loan book despite tighter global financial conditions.

The report noted ongoing operational risks, particularly system disruptions and incidents of financial fraud in some institutions. To strengthen resilience, the BoU is enforcing compliance with its Cyber and Technology Risk Management Guidelines (2024), which mandate banks to enhance digital infrastructure, internal controls, and cybersecurity defenses.

On the liquidity front, conditions have stabilized through the first half of 2025. Despite increased funding costs and higher investments in government securities, the central bank said overall liquidity in the system remains adequate. The BoU’s buildup of foreign exchange reserves has provided an additional cushion, easing pressure on the interbank market and supporting the stability of the shilling.

Uganda’s banking sector continues to meet or exceed regulatory liquidity and capital requirements. All supervised financial institutions maintained compliance with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), underscoring their ability to withstand both short-term liquidity shocks and longer-term funding pressures.

The report further indicated that the sector’s capitalization remains well above the minimum core and total capital adequacy ratios, reflecting continued investor confidence and effective risk management. These buffers provide a strong defense against potential economic or market volatility.

The BoU reaffirmed its commitment to maintaining financial stability through ongoing policy interventions and supervisory vigilance. Key priorities include strengthening prudential oversight, improving liquidity management practices, and aligning systemic risk assessment frameworks with evolving international standards.

“The Bank of Uganda will continue to enhance monitoring mechanisms and ensure that emerging vulnerabilities do not translate into financial losses or contagion risks,” the statement said.

Overall, the central bank’s review concludes that Uganda’s financial system remains fundamentally sound, supported by a well-capitalized and liquid banking sector, robust supervision, and an improving economic environment.

Analysts say the findings reflect Uganda’s success in maintaining macro-financial stability amid a challenging global context of high interest rates, geopolitical uncertainty, and tight capital markets. “Uganda’s financial sector remains one of the most resilient in the region,” said an economist at a Kampala-based investment firm. “The key challenge ahead will be sustaining this resilience while supporting private sector credit growth.”

As the BoU continues to refine its regulatory approach and strengthen market confidence, Uganda’s financial sector appears positioned to navigate external headwinds while continuing to support the country’s broader economic recovery and long-term development.