According to Tumubweinee Twinemanzi, the executive director in charge of supervision at the Bank of Uganda (BoU), the profitability of commercial banks in Uganda has been significantly influenced by interest income derived from government securities.
The banking sector witnessed a substantial increase in net profit after tax, marking a notable growth of 15.9% to a total of sh1.5 trillion. This surge in profitability was predominantly propelled by a 13.8% rise in interest income and a 14.4% increase in fee income, as reported by Twinemanzi.
Twinemanzi further elaborated that during the year ending March 2024, the profitability of supervised financial institutions was predominantly fueled by interest income earned from government securities.
Data from the Bank of Uganda indicates that the return on investment for banks experienced a marginal improvement, edging up from 2.9% to 3.1%. While this suggests a slight enhancement in the sector’s overall performance, it underscores the importance of interest income from government securities.
Examining the cost-to-income ratios, credit institutions and microfinance deposit-taking institutions recorded ratios of 112.7% and 97.1%, respectively. These figures provide insights into the operational efficiency and financial health of banks within the sector.
In April, leading commercial banks released their earnings reports for the period ending December 2023. Notably, Dfcu Bank’s lending to the government resulted in approximately sh131 billion in interest income during the review period, reflecting a significant increase from the sh86 billion recorded previously. The bank reported a profit after tax of sh34 billion for the period.
Similarly, Absa Bank Uganda earned over sh162 billion in interest income from investment securities in 2023, contributing to its net profits of sh146 billion, compared to sh141 billion in 2022.
The passage of the sh72.13 trillion national budget by Parliament on May 16 allocated a substantial portion to servicing Uganda’s debt to both domestic and foreign lenders, amounting to about sh34.017 trillion. This underscores the significance of government debt instruments in the financial landscape and their impact on the banking sector’s profitability.
