Bank held back at least Shs436.3b in dividend and bonus payout for the period ended June, the Central Bank has said.
Financial institutions, following a directive from the Central Bank, halted payment of bonuses and dividends as a measure to reserve money for the real economy and liquidity support.
In an April circular signed by Dr Tumubweine Twinemanzi, the Bank of Uganda executive director for supervision, the Central Bank directed supervised financial institutions to defer the payment of dividends and bonuses until further notice.
"Capital reservation to support the real economy and absorbed losses should take priority over discretionary distributions like dividend [and] bonus payments. Therefore, all payments of discretionary distributions is deferred until further notice or until explicit authorisation is given by Bank of Uganda," the circular said then.
In its quarterly economic stability report, Bank of Uganda reported that the: "Deferment of payment of all discretionary distributions including dividends had enabled supervised financial institutions to build up capital and liquidity reserves and enhance their ability to weather the shocks [with the] total deferred dividends amount of Shs436.3b ($118.72m)."
The money has been a buffer in absorbing shocks in the banking sector resulting from the need to restructure loans for at least 12 months to April 2021.
The effects of Covid-19, which saw many businesses close down from March up to June have presented the banking sector with challenges key among them the threat of an increase in non-performing loans for which banks must provision for.
The challenges have been exacerbated by a slowdown in economic growth which the Central Bank says is projected to slow down to 3 per cent in the foreseeable future.
The 3 per cent is a recovery from - 3.2 per cent in which the economy had slid in the period between March and June.
Dr Fred Muhumuza, a Makerere University economics lecturer, told Daily Monitor yesterday that the Central Bank had taken a wise decision that has assisted supervised financial institutions to have enough liquidity to continue with operations during the Covid-19 related instructions.
"The decision was good. It has helped banks during a time when they were experiencing liquidity challenges," he said dividend payout, though necessary would have worked negatively because banks would be required to mobilise substantial amounts of money to fulfill the payout.
The Central Bank also notes that for the period ended June, more than half of the financial institutions' branches were closed and or had shorter operating hours, which resulted in reduced business activity.
The report also noted costs associated with managing the operational risks during Covid-19 are likely to negatively affect the profitability of supervised financial institutions and could drive up access costs to consumers of financial services over the short- to medium-term.