The level of nonperforming loans in Uganda’s commercial banks has dropped by 2.1 per cent indicating an improvement in the industry’s overall asset quality.
Speaking during the release of the central bank annual supervision report in Kampala last week, Mr Robert Mbabazize, the assistant financial stability director said: “The ratio of nonperforming loans to total gross loans has reduced from 4.2 per cent to 2.1 per cent between 2009 and 2010,”
The report indicates that the agricultural sector maintained the highest share of total nonperforming loans for two consecutive years, running between 28.8 per cent and 22.1 per cent for 2009 and 2010 respectively.
Banks’ asset quality is a key indicator of the quality of banks’ credit and overall risk of default.
The central bank said overall, bank asset quality in Uganda has improved in the period after the global crisis and continues to be good.
Despite having the second largest share of nonperforming loans during 2010, the building and construction sector lowered their ratio to 1.5 per cent from 2.9 per cent, thus indicating banks’ readiness to lend to the to the sector.
All sectors except the agricultural sector had nonperforming loans to total loans ratios below the industry average of 2.1 percent in 2010.
He said if compared to the rest of East Africa, asset quality for Ugandan banks remains strong. Rwanda registered the highest ratio at 11.3 per cent as of end of December 2010, while Kenya’s ratio stood at 6.2 per cent compared to Tanzania’s, 6.7 per cent in the same period.
The central bank annual supervision report also indicates that commercial banks’ total outstanding credit increased by 35.1 per cent during the year ending December 2010, about double the growth to December 2009.