14 September 2017

Uganda: Weak Economic Activity Hits Bank Deposits

Kampala — Growth in bank deposits declined by 2.6 per cent in 2016, reflecting weak economic activity, the Bank of Uganda (BoU) annual supervision report has shown.

In the latest annual supervision, the Central Bank says deposits grew at 9.5 per cent in 2016, down from 12.1 per cent in the year to December 2015.

BoU also says banks continued to be reliant on retail funding as in 2015. At the end of December 2016, customer deposits accounted for 81.1 per cent of the total liabilities of the banking sector.

Wholesale funding reduced during the year 2016, accounting for 3.0 per cent of total liabilities compared to the 3.5 per cent in 2015.

The report reveals that total shareholders' equity of the banking system grew by only 1.9 per cent from Shs3.6 trillion to Shs3.7 trillion in 2016.

This was lower than 12.6 per cent growth rate in the previous year. The slow growth in equity was due to banks' subdued capital generation from retained reserves during 2016.

The supervision report shows that retained reserves in banks increased by 9.1 per cent in 2016, compared to 23.2 per cent in the previous year.

Bank of Uganda director - financial stability Charles Abuka said the decline in deposit growth was driven by a fall in foreign currency time deposits which dropped by 17.7 per cent from Shs1.959 trillion in December 2015 to Shs1.612 trillion in December 2016. Talking to Daily Monitor on Monday, dfcu Bank managing director Juma Kisaame attributed the slowdown in bank deposits growth to slow down in the economy, limited investment in the oil sector and the war in South Sudan.

He said: "2016 was an election year and because of that, there was slowdown in economic activities in the country, limited investment in the oil sector because in 2015 the oil companies had slow down (down sized) their investment in Uganda's oil sector and in 2016 the companies were yet to sign oil production agreement with the government this also caused slowdown growth in bank deposit in 2016."

He added: "The other factor which cased slowdown in growth bank deposit was the war in South Sudan, before the war broke out there; there was a lot of money coming from that country in form of exports because the private sector got money out of their deposits in banks."

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