Ugandan Banks Assets Six Times Larger Than Capital Base

Sep 08, 2017 | The Monitor; All Africa

Despite a slowdown in private sector credit and the high level of the non-performing loans, Bank of Uganda (BoU) says the country's commercial banks' total assets are nearly six times larger than their capital requirements.

Bank assets include cash, loans and securities, while liabilities cover customer deposits, and money owed to other banks and bondholders. Bank capital, on the other hand, is the value of the assets minus its liabilities, or debts. Bank of Uganda requires a commercial bank to have minimum capital of Shs25b to operate in Uganda In his keynote address themed The contribution of accountancy to the health and stability of the banking sector during the 22 annual seminar of Institute of Public Accountants of Uganda, BoU deputy governor Louis Kasekende said banks are unique among commercial enterprises in respect of their high levels of leverage. "In aggregate, Ugandan banks have total assets which are nearly six times larger than their capital base. Banks' assets are, therefore, funded predominantly with borrowed resources, of which customer deposits comprise more than 80 per cent," he said on Wednesday at Imperial Resort Beach Entebbe. Banks' total shareholders' capital increased in nominal terms from Shs3.3 trillion to Shs3.7 trillion between June 2015 and June 2016. This was aided by growth in retained earnings for the year by 19.9 per cent or Shs2 95.1 billion. Dr Kasekende said: "Trust and confidence in the sound management of the banks rests on three complementary pillars: the corporate governance of banks, their external audit and public regulation and supervision. In all three pillars, accounting skills and expertise play an essential role." He said the corporate governance regulations in Uganda focus on four key themes: the fiduciary responsibilities of the Board of Directors (BoD), the importance of independent oversight of bank management, the priority which must be attached to risk management and the need for independent audit functions. Dr Kasekende further stated that the main responsibility of ensuring good corporate governance in a bank lies with its BoD and that all directors must be approved by the BoU. "They must be of the highest integrity and have professional expertise relevant to banking, such as accounting qualifications. Each director is individually responsible for the conduct of the bank and can be held responsible for any misconduct by the bank," he said. Read more on All Africa. Source: All Africa