Uganda’s banking profits rose to 27% in 2021, despite COVID-19 pandemic

The banking industry in Uganda registered a 27% profit in 2021, higher than that of the previous year, as the economy partially recovered from devastating effects of COVID-19. This is according to the Bank of Uganda’s (BoU) latest annual supervision report.

The future of the sector is however shrouded in mystery, and a matter of speculation, due to the ongoing Russia-Ukraine conflict, and the surge in commodity prices.

The sector posted Shs.1.07 trillion in profits in 2021, a drastic rise from Shs 846.2 billion in the previous year, ocassioned by income from investments in government securities and loans.
Besides, the ratio of non-performing loans was largely unchanged between 2020 and 2021 at 5.27% versus 5.26% respectively.

The Deputy Governor for BoU Michael Atingi-Ego, said the banking industry remains resilient though tightening of monetary policy, supply-side shocks and rising commodity prices could have a spillover adverse effect on the country’s financial system.

Early this month, BoU raised the central bank rate by one percentage point to 7.5% for the first time in the last two years to curb inflation that had jumped to 6%, one percentage above the usual annual target.

Similarly, Credit Institutions or Tier II financial institutions’ net profit improved from Shs14.7 billion loss in 2020 to Shs 4.3 billion profit last year.

On the other other side of the coin, the microfinance deposit-taking institutions (MDIs)’ net profit reduced from Shs 33.9 billion to Shs 36.8 billion loss over the same period under review following a 71.5 percent increase in provisions for bad loans, a situation blammed on the impact of the COVID-19 pandemic on micro and macro borrowers.

“Going forward, the main risk to supervised financial institutions’ (SFIs’) profitability remains the potential increase of non-performing loans and provisions as SFIs’ loans may become permanently impaired as a result of the effect of the pandemic on economic activity,” BoU said in the report.

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