Uganda’s banking sector continues to demonstrate resilience, strong profitability, and sound risk management, Bank of Uganda’s Quarterly Financial Stability Review has shown. The review for the quarter ending March 2025, shows that commercial banks and other Supervised Financial Institutions (SFIs) remain well-capitalized and profitable, even as they navigate a growing exposure to public debt and evolving credit trends. The banking industry posted a combined Net Profit after Tax (NPAT) of UGX 1.7 trillion, up from UGX 1.5 trillion the same period for the previous year, marking a 13.8 % increase. This growth reflects improved asset quality, higher interest income, and reduced loan loss provisions. According to BoU, “Aggregate earnings and profitability of Uganda’s banking sector continued to improve over the year to March 2025, maintaining the positive trend noted in the previous review period.†Interest income rose by UGX 578.4 billion (an 8.2 % increase), while provisions for bad debts decreased by UGX 76.8 billion, or 19.8 %. The Return on Assets (ROA) improved slightly from 3.1% to 3.2 %, underscoring more efficient use of financial resources. According to Ritah Nansubuga, a Kampala-based financial analyst, “The sustained rise in profitability provides commercial banks with the flexibility to invest in innovation, expand access to credit, and build resilience against economic shocks.†Commercial banks led profitability with UGX 1.689 trillion in NPAT, followed by Credit Institutions (UGX 9.7 billion) and Microfinance Deposit-taking Institutions (MDIs), whose profits surged from UGX 1.7 billion to UGX 21.2 billion. Policy expert Patrick Mugisha noted, “The fact that banks remain well-capitalized even while growing their loan books and expanding profitability is a strong indicator of systemic stability. This allows them to support both government borrowing and private sector lending without jeopardizing their balance sheets.†BoU also confirmed that all eligible institutions complied with the leverage ratio and systemic risk buffer requirements. Meanwhile, only two SFIs remain below the revised minimum paid-up capital requirements UGX 150 billion for Tier I banks and UGX 25 billion for Tier II banks but both are actively implementing Capital Restoration Plans. However, the report flagged the growing exposure of banks to public debt. “The banking sector’s exposure to public debt as a share of total assets averaged 30.4 % at the end of March 2025, compared to 29.9 % in December 2024, the review notes. A BoU report shows credit to government nearing levels of credit to the private sector, raising the need for a cautious approach in balancing the two priorities. Experts warn that while government securities offer attractive returns, overexposure could crowd out private sector borrowing in the long term. Credit to the private sector is on the rise, albeit still below long-term projections. Total loans extended by SFIs grew by 6.8 %, reaching UGX 22.9 trillion in the year to March 2025, up from 6.5 % growth in the previous year. This uptick was supported by a reduction in the average lending rate to 17.7 %, down from 18.3 % in December 2024. Improved loan affordability and higher repayment ability led to increased disbursements. The loan repayment rate rose to 28.7 %, up from 25.6 %. As a result, net loan extensions for the year totalled UGX 1.5 trillion. BoU described this trend as positive, highlighting that lower interest rates and stronger borrower performance are beginning to translate into more sustainable credit growth. Uganda’s banking sector enters the next fiscal year with a strong capital base, sustained profitability, and prudent risk management. However, the BoU remains cautious of emerging risks, particularly rising sovereign exposure and potential external shocks.
