Transactions in Uganda’s banking sector grew to a robust sh20 trillion from sh18 trillion the year before, helped by growth in agent banking, a survey by Summit Consulting indicates.
Mustapha Mugisa, the Summit Consulting lead consultant, said, during the release of the report on Uganda’s banking sector, the findings were a result of analysis of the published financial results of the banks to understand the key sector drivers and how each bank performed.
“We want to promote transparency in the sector through informed analysis and interpretation of the published reports,” he said.
The summit report found that bank agents have increased, surging by 22.29% from 642,970 last year.
There is a 19% likelihood of borrowers of such loans to default.
Next to that segment, is agriculture at 12%, with the second-highest impact on the loan book? This was mainly due to the fact that agricultural disbursements, especially for commercial banks, have always been high.
“Thus, one instance of default tends to impair a great part of the portfolio,” the report stated.
The report found that the Housing Finance Bank is top on the list in capital adequacy, with a low-risk rating of just about 7.67. The summit noted that banks with a low-risk rating can absorb any contemporary and expected risks, have a low cost of borrowing, a fairly balanced deposit contribution to assets, and will leverage highly in any Initial Public Offer secondary offering on any exchange.
The report also noted that KCB Bank, Orient bank, UGAFODE Microfinance Limited, and Absa Bank had the highest cash coverage ratio for unanticipated short term liquidity risks. On the flip side, Mercantile Credit Bank, ABC Capital, and Opportunity Bank had high-risk ratings.
“These banks have a substantial risk of exposure to the bank and there is an urgent need to improve risk management,” the report stated. It added that Top Finance Bank, CBA, Orient, Tropical, and KCB were all undercapitalized last year.
On the flip side, ABC Capital and Pride Microfinance Bank had the healthiest Capital Adequacy position last year. The report also found that the general industrial liquidity coverage dropped 51.03% year-on-year from 8.6 times annual liquidity buffer in 2018, to just about 4.2 last year, with more than 76.47% of financial institutions having less liquidity coverage after 12 months