The financial system remains resilient, well-capitalized, and profitable despite a challenging global and domestic environment, Bank of Uganda (BoU) says in its Integrated Annual Report for the 2024/25 financial year.
Commercial banks and other supervised financial institutions, BoU says, have maintained adequate capital and liquidity buffers, supported by strong earnings and improved asset quality.
These fundamentals, BoU says, have safeguarded the stability of the financial sector even as external risks and domestic fiscal pressures persist.
‘The financial system remained safe and sound during the year under review, with sufficient capital, liquidity, and profitability to absorb potential shocks,’ the report states.
The report shows that non-performing loans (NPLs), a key measure of banking sector health, declined to 3.7 percent, from 4.3 percent the previous year, which reflects effective credit risk management, closer supervision, and continued post-Covid-19 recovery in several sectors, particularly trade, agriculture, and manufacturing.
Banks also posted robust profits, underpinned by rising interest income, higher efficiency, and improved credit performance.
Credit to the private sector expanded by 8.8 percent during the year, supported by the Agricultural Credit Facility and Small Business Recovery Fund, which eased access to affordable credit for small and medium enterprises.
BoU says the sector’s liquidity position remains strong, with banks fully compliant with the Liquidity Coverage Ratio and Net Stable Funding Ratio, now prudential requirements across all supervised institutions.
To further enhance resilience, BoU says it conducted bottom-up stress tests on domestic systemically important banks and a sector-wide crisis simulation exercise to evaluate the system’s response to shocks.
The results, BoU notes, confirmed that the financial sector has the potential to withstand moderate macroeconomic and credit pressures without breaching regulatory thresholds.
The central bank also intensified its anti-money laundering and counter-terrorism financing supervision, issuing new sectoral risk assessments and guidance to strengthen the integrity of the financial system.
Through active liquidity management operations, including standing lending facilities and repo transactions, BoU ensured stability in short-term interbank rates, while investor confidence for both domestic and offshore remained strong, helping contain government securities yields and sustain orderly market conditions.