KAMPALA– Year on year, commercial banks’ aggregate net profits after tax (NPAT) increased by 26.9 percent to Shs 1,073.9 billion in the year ending December 2021 from Shs 846.2bln in the previous year, according to the Bank of Uganda [BoU] Annual Supervision Report [ASR] December 2021.
The report attributes the growth in net earnings to increases of 24.4 percent and 7.9 percent in interest income from government securities and loans respectively.
Similarly, Credit Institutions [CIs’] NPAT improved from a loss of Shs 14.7bln in the year to December 2020 to a profit of Shs 4.3bln in the year to December 2021.
On the other hand, the microfinance deposit-taking institutions (MDIs)’ NPAT reduced from Shs 33.9bln to a loss of Shs 36.8bln over the same period following a 71.5 percent increase in MDIs’ provisions for bad loans, mainly due to the impact of the COVID-19 pandemic on micro borrowers.
Going forward, the report says, the main risk to Supervised Financial Institutions’ [SFI’s] profitability remains the potential increase of non-performing loans (NPLs) and provisions as SFIs’ loans may become permanently impaired as a result of the effect of the pandemic on economic activity.
In the report, BoU Deputy Governor Michael Atingi-Ego, says the ratio of non-performing loans was largely unchanged between 2020 and 2021 at 5.27 percent versus 5.26 percent respectively.
Overall, Atingi-Ego says, near term risk to financial stability remains elevated from the macro side given the general tightening of monetary policy, supply-side shocks and rising commodity prices. These in combination could have spillover adverse effects on Uganda’s financial system.
However, the banking sector in Uganda remains resilient to these potential shocks given its enhanced loss absorbency capacity reflected in existing liquidity and capital buffers.
On aggregate, the banking sector held strong capital buffers as at end-December 2021, enhancing resilience to potential shocks. “BOU’s continued prudential policy restriction on the payment of dividends by SFIs has enabled them to retain more of their earnings towards organically building capital buffers.”
According to the report, except for one bank [not named], all other commercial banks and Microfinance Deposit-taking Institution [MDIs] met their respective paid-up capital, core capital-to-risk-weighted assets [RWA] [core capital adequacy ratio] and total capital-to-RWA [total capital adequacy ratio] minimum requirements of Shs.25bbln, 10 percent and 12 percent respectively for commercial banks and Shs.0.5bln, 15 percent and 20 percent for MDIs.
Further, all domestically systemic important banks (DSIBs) held sufficient capital buffers to meet their respective systemic risk buffer requirements, pursuant to the Financial Institutions [Capital Buffers and Leverage Ratio] Regulations, 2020.
However, two CIs, the report says, did not meet the minimum capital requirements as at end-2021. “These CIs along with one commercial bank have been subjected to enhanced supervisory actions aimed at restoring capital adequacy,” the report says.
Atingi-Ego says BOU publishes the ASR to keep the public abreast of salient issues relating to prudential regulation and supervision of Supervised Financial Institutions (SFIs) and developments in the financial sector.
SFIs are comprised of commercial banks, credit institutions, microfinance deposit-taking institutions, foreign exchange bureaus, and money remitters.
https://thecooperator.news/absa-bank-uganda-profit-after-tax-up-by-169-percent/
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