High staff exits undermining banking sector stability, says BoU
Bank of Uganda says its onsite examination recorded high staff turnover in some banks, which presents operational challenges. PHOTO / FILE
What you need to know:
- Bank of Uganda says high staff turnover was among some of the systematic challenges it had found during its onsite examination of supervised financial institutions for the year ended June 2024
Bank of Uganda (BoU) has said high staff turnover in some supervised financial institutions remained a key challenge in the year ended June 2024.
The details, which are contained in the Bank of Uganda 2024 Annual Report, indicate that high staff turnover, which has remained unique to some financial institutions, was among some of the systemic challenges that continue to present challenges to the stable operation of the banking sector.
“BoU conducted onsite examinations at several [supervised financial institutions and] identified idiosyncratic challenges in some [supervised financial institutions] … the examinations revealed critical systemic challenges … some [supervised financial institutions] continue to experience high staff turnover rates, which undermines operational stability as well as institutional knowledge,” the report reads in part.
The Central Bank also revealed that in its onsite examination of supervised financial institutions for the year ended June, it had further found critical challenges in some institutions, particularly in risk management, corporate governance, audit processes, and strategic planning, noting that it would continue to engage individual supervised financial institutions facing challenges to develop tailored strategies for improvement that will have specific and time-bound directives to support them in addressing identified challenges.
“These findings highlight the urgent need for ongoing strategic planning, comprehensive risk management enhancements, and stronger governance across all [supervised financial institutions] to ensure long-term resilience and stability,” the report read in part, further noting that the Central Bank had prescribed appropriate targeted remedial measures to enhance banking sector resilience.
The banking sector remains pivotal in Uganda’s growth and a key driver in terms of economic stability.
The sector, which is highly regulated due to its sensitivity, has remained resilient amid several disruptions across different sectors of the economy offshoot by post-Covid-19 related disruptions and new challenges resulting from conflicts in Eastern Europe and the Middle East.
Data from the Uganda Banker Association indicates that the banking sector has about 19,428 employees, of which, 47 percent are male while 53 percent are female.
It was not immediately clear how many employees left the banking sector during the year ended June.
Inquiries seeking further details about the matter from Bank of Uganda had not been responded to by press time.
However, regarding risk management, corporate governance, and audit process challenges, the Central Bank has previously been swift in closing some supervised financial institutions that are found not to have adhered to set guidelines.
Only this year, the Bank of Uganda has separately closed two financial institutions, including EFC and Mercantile Credit Bank over poor corporate governance, in addition to other challenges such as undercapitalization.
EFC and Mercantile Credit Bank were closed in January and June, respectively, after which they were placed under liquidation.
Commercial bank assets grow by Shs4.2 trillion
Meanwhile, banking sector assets increased by Shs4.2 trillion or 8.4 percent in the period ended June, according to the Bank of Uganda 2024 Annual Report.
The report, which reviews key banking and economic sector fundamentals for the financial year ended June 2024 indicates that banking sector assets grew from Shs49.7 trillion in June 2023 to Shs53.9 trillion.
The growth was largely driven by holdings in government debt, loans, and deposits in foreign financial institutions, which increased by 10.1 percent, 6.8 percent, and 33.2 percent to Shs15 trillion, Shs22.6 trillion, and to Shs4.17 trillion, respectively.
During the period, whereas commercial bank and microfinance deposit-taking institutions assets grew by 8.9 percent and 2.1 percent to Shs52.6 trillion and Shs882.6b, respectively, credit institutions recorded a reduction of 21.5 percent from Shs490.6b to Shs385.2b due to the closure of Mercantile Credit Bank on 18 June, which accounted for 26.7 percent of total assets held by credit institutions.
Bank of Uganda noted that supervised financial institutions continued to rely on deposits, which grew by 4.2 percent from Shs35 trillion to Shs36.4 trillion on account of savings and time deposits that rose by 4.7 percent and 5.7 percent and accounted for 83.2 percent of total liabilities.
Supervised financial institutions also recorded a growth of 6.8 percent in lending, rising from Shs21 trillion to Shs22.6 trillion - higher than the 5 percent recorded in June 2023.
However, credit growth remained below the long-term trend and projected target of 13 percent, partly reflecting a measured response by supervised financial institutions and borrowers in adapting to tight financing conditions.
Bank of Uganda indicated that during the period, assets quality improved, in addition to a decline in the aggregate ratio of non-performing loans to gross loans, which reduced from 5.8 percent to 4.9 percent, with non-performing loans declining across most sectors.
The improved performance across several parameters saw the banking sector remain profitable, with the net profit portfolio rising to 1.42 trillion from Shs1.39 trillion in June 2023.
