Ugan­dan banks’ 2016 stock of bad loans dou­bles

Re­port mir­rors slow credit growth across the re­gion last year, when Kenyan banks lost $250.7 mil­lion

The East African - - BUSINESS - By ALLAN OLINGO The Eastafrican

Ugan­dan banks recorded a sharp drop in af­ter tax prof­its to $82.8 mil­lion last year from $148.3 mil­lion the pre­vi­ous year, at­trib­uted to a slow­down in credit growth and in­crease in non-per­form­ing loans.

As a re­sult, the sec­tor’s av­er­age re­turn on eq­uity dropped from 16 per cent to 8.3 per cent as re­turns on as­sets also halved to 1.3 per cent last year.

“To­tal bank credit in­creased by 6.1 per cent in 2016 to $3.1 bil­lion, lower by 14.9 per cent as com­pared to 2015. The shilling­de­nom­i­nated loans grew by 7.5 per cent to reach $1.75 bil­lion, while for­eign cur­rency de­nom­i­nated loans grew by 4.4 per cent in 2016,” the Bank of Uganda an­nual su­per­vi­sion re­port says.

This mir­rors the slow credit growth across the re­gion last year, which also saw Kenyan banks lose $250.7 mil­lion. The Kenyan banks recorded an 11.2 per cent drop in net profit to $495.6 mil­lion for the first six months of this year com­pared to last year.

Bank of Uganda said that the re­duc­tion in loan growth was on ac­count of banks’ cau­tious lend­ing strat­egy fol­low­ing an in­crease in non-per­form­ing loans in the year un­der re­view.

Last year, only 59.7 per cent of the loan ap­pli­ca­tions were ap­proved, which was lower than the 62.5 per cent value ap­proved in 2015.

“In 2016, we had a dif­fi­cult year for the sec­tor which saw large ex­po­sures to banks by bor­row­ers who failed to re­pay their loans on time push­ing up the non-per­form­ing loans (NPL) num­bers. Th­ese NPLS were the re­sult of higher in­ter­est rates and over­sup­ply in the prop­erty mar­ket,” the BOU Gover­nor Em­manuel Mute­bile said.

“The loans to the per­sonal and house­hold sec­tor in­creased by 14.9 per cent to reach $520.7 mil­lion last year. Con­versely, to­tal credit to the build­ing, con­struc­tion and real es­tate sec­tor and the trade and com­merce sec­tor in­creased at a slower pace than in the pre­vi­ous year,” the BOU said.

The Ugan­dan banks continued to rely on re­tail fund­ing with cus­tomer de­posits accounting for 81.1 per cent of the to­tal li­a­bil­i­ties of the bank­ing sec­tor. Last year saw the bank’s de­posits growth drop to 9.5 per cent in 2016, down from 12.1 per cent in 2015.

The to­tal as­sets of Uganda’s bank­ing sec­tor grew by 9.1 per cent from USH21.7 tril­lion ($6.03 mil­lion) to USH23.7 tril­lion ($6.58 mil­lion) be­tween De­cem­ber 2015 and De­cem­ber 2016. This was lower than the growth of 10.9 per cent in 2015.

The in­crease in bank as­sets was mainly on ac­count of in­creased banks’ hold­ings of gov­ern­ment se­cu­ri­ties by 25.6 per cent from USH4.1 tril­lion ($1.14 mil­lion) to USH5.1 tril­lion ($1.42 mil­lion) in the same pe­riod.

The bank­ing sec­tor’s over­all as­set qual­ity continued to de­cline in 2016, with the ra­tio of non–per­form­ing loans to to­tal gross loans in­creas­ing from 5.3 per cent in 2015 to 10.5 per cent last year.

The in­crease in the NPL ra­tio was mainly on ac­count of bad loans which more than dou­bled from $157.19 mil­lion in 2015 to $328.9 mil­lion last year.

The banks also saw their to­tal ex­penses grow by 9.3 per cent, mostly in the form of in­ter­est ex­pense on de­posits, while the in­creased pro­vi­sion­ing for bad debts also re­duced the bank­ing sec­tor’s earn­ings for the last year in­creas­ing by more than 100 per cent to reach $174.6 mil­lion in 2016.

Pic­ture: File

Bank of Uganda head­quar­ters in Kam­pala. The bank just re­leased its an­nual bank su­per­vi­sion re­port.

Newspapers in English

Newspapers from Kenya

© PressReader. All rights reserved.