Provisions for loan losses grew exponentially in the period ended December 2020, increasing by Shs149.1b, according to financial results released by different commercial banks.
This was the highest growth in over years, signaling a difficult period for the banking sector and borrowers, whose capacity to repay loans was highly impacted by Covid-19.
According to data compiled from different commercial banks' financial results, provisioning for bad loans and loan losses, which is an accounting requirement, grew to a combined Shs364.7b compared to Shs215.5b in the same period in 2019.
The growth, according to different banks, was largely on account of increasing inability by borrowers to sufficiently service their loan obligations resulting from reduced economic activity and low demand.
During the period, Stanbic, which is Uganda's largest bank by assets, reported the largest growth, forcing the bank to set aside Shs91.8b to provision for losses.
This was a 110 per cent growth from Shs43.5b that the bank had put aside in the same period in 2019.
Dfcu Bank, which had earlier indicated that loan losses had impacted its profitability, saw loan provisioning increase by 107 per cent while impairment of financial assets rose by 400 per cent to reach Shs50b.
This, subsequently ate into the bank's profitability, which dropped by more than 67 per cent from Shs74b in December 2019 to Shs24b in 2020.
Absa set aside Shs60.7b from just Shs12.21b in 2019 while Equity reported Shs24.5b in loan provisioning compared to Shs14.3b in 2019. Centenary Bank set aside Shs43.6b during the period from Shs21.5b in 2019.
The five banks, which share the largest amount of the provisioning (Shs270.6b), reported they had more than doubled the amount they set aside in 2020 compared to the same period in 2019.
International financial reporting requires that banks set aside a certain amount of money to provision for losses expected from uncollected loans and interest payment.
Cairo Bank, which recently rebranded from Cairo International Bank, set aside Shs17.3b in 2020 from Shs13.8b, while Housing Finance Bank provisioned Shs10.6b from Shs8.1b in the period under review.
Opportunity Bank provisioned Shs3.7b up from Shs2.5b in 2019, while Diamond Trust Bank set aside Shs1.9b up from Shs1.7b in 2019. Citibank provisioned Shs3.8b from Shs1.5b in 2019.
Ecobank and Guaranty Trust Bank recorded the least provisions, setting aside Shs212.6m and Shs659.7m from Shs321.4m, respectively.
During the period, only two banks, including Standard Chartered Bank and Orient Bank, recorded a reduction in loan provisioning.
Standard Chartered saw loan provisions drop to Shs53.6b in 2020 down from Shs56.7b in 2019, while Orient Bank reported a drop from Shs1.5b in 2019 to Shs1.1b.
Provisioning for loans, which is provided for under International Financial Reporting Standard 9, provides for bad debts that are likely to be written off during the next reporting period.
In otherwards, loan provisions are counted as a loss to the bank, which under accounting proceedures, must not be captured in its profit and loss accounts.