Wednesday April 3 2013

Good capital adequacy to spur confidence in banking industry


Kampala. Effective regulatory framework by the Bank of Uganda has seen commercial banks’ capital adequacy surpassing the regulatory requirement by 10.8 per cent.

Development analysts and bankers say this places Ugandan banks in a strong position to withstand shocks that may arise in the banking industry.
In a brief interview with the Daily Monitor, the executive director of supervision at Bank of Uganda, Ms Justine Bagyenda, said: “The capital adequacy ratio as at December 31, 2012 is 18.8 per cent, well above the regulatory minimum of 8 per cent. Non Asset is at 4.2 per cent as at December 31.”
March 1, 2013 was the deadline for all banks in Uganda to meet the capital requirement of Shs25 billion.

Regional alignment
The development of increasing capital requirements for banks from the previous Shs4 billion to Shs10 billion and then to Shs25 billion, was meant to align Ugandan banks with the other commercial banks in the region that have also had their capital requirements increased by their respective central banks.
Ms Bagyenda said: “All banks have met the capital requirement of Shs25 billion.”
In a separate interview with the Daily Monitor, a partner with PriceWaterHouseCoppers, Mr Uthman Mayanja, said: “The concept of capital adequacy is used to determine whether a bank has adequate capital to meet losses it might suffer in the near future.”

He explains that the Bank for International Settlements has determined this rate at 8 per cent, arguing that if Ugandan banks are at 18 per cent it shows how much of a buffer, over and above the statutory and international minimum is held.

Non-performing loans increase
Following the high lending rates over the past year, the level of non-performing loans in Ugandan banks has increased from 2.9 per cent some two years ago to the current level of 4.2 per cent.