Banks register increase in write-offs due to bad loans 

Whereas there has been recovery in a number of business sectors, shocks continue to present challenges, making loan repayment difficult. Photo / File 

What you need to know:

  • Even with an increase in write-offs, commercial banks’ asset quality improved across the sector, largely due to prudent management of bad loans

Banks recorded an increase in loan write-offs in the quarter ended September, according to Bank of Uganda. 

Speaking during the Bank of Uganda Financial Stability Symposium in Kampala Mr Robert Mbabazize, the Bank Uganda director for financial stability, said loan write-offs rose by Shs26.1b from Shs102.8b in the quarter ended June to Shs128.9b in September. 

However, he said, commercial banks’ asset quality improved across the sector, largely due to prudent write-off of bad loans. 

Mr Mbabazize also indicated that supervised financial institutions registered a slight decline in non-performing loans from 5.4 percent in June to 5.2 percent.

During the period credit growth remained subdued due in part to muted economic growth with supervised financial institutions, recording a 3.2 percent growth in loans or Shs624b to Shs19.9 trillion. 

However, credit to manufacturing and real estate experienced a decline while agriculture registered increased approvals. 

Mr Mbabazize also noted that even with multiple challenges, the banking sector remains resilient but indicated that household and corporate debt servicing costs continue to rise due to emerging macro risk factors and Covid-19 credit relief measures. 

“Financial institutions remain sound with strong liquidity buffers and banks’ capital levels continue to strengthen,” he said, noting that aggregate supervised financial institutions capital adequacy remained strong during the quarter to September, reflecting the banking sector resilience. 

During the period, aggregate core average ratio for commercial banks remained unchanged at 21.4 percent, well above the 10 percent minimum, while that of credit institutions rose from 12.4 percent to 15.9 percent. However, micro-deposit taking institutions experienced a slight reduction from 38.6 percent in June to 38.1 percent.

The stability, Mr Mbabazize said, was supported by continued growth in earnings mainly from interest income, which grew by 7.8 percent from 4.9 percent in June. 

Bank of Uganda also noted that retail and wholesale funding conditions continued to tighten over the quarter, increasing liquidity pressures while funding costs in the interbank market increased, partly reflective of market sentiments and Bank of Uganda policy actions. 


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