louis kasekende : uganda ’ s financial sector at 50 – achievements, challenges and expectations for the future speech by dr louis kasekende, deputy governor of the bank of uganda, at the uganda institute of banking and financial services annual dinner, kampala, 1 march 2013. * * * chief executive officer, uganda institute of banking & financial services chief executives of commercial banks invited guests ladies & gentlemen i would like to begin by thanking the uganda institute of banking and financial services for graciously inviting me to speak at this occasion, where we will celebrate 50 years of achievements by the banking and financial services industry in uganda and look ahead to the challenges that the industry will confront in the future. i also want to commend the institute for the excellent work it is doing, especially through professional training of staff ; training which is critical to helping the industry meet the exacting demands of a modern economy in which technology and markets are evolving at a rapid pace. in these remarks i would like to highlight the most notable achievements of the banking industry since the start of the millennium and then go on to identify what i believe are some of the most pertinent challenges that the industry must face in the years ahead. the banking industry in uganda can take pride in four major achievements since the start of this millennium ; achievements which have brought important benefits for the wider economy and the ugandan public. the first achievement i want to highlight is the dramatic increase in the intermediation of funds ; the extent to which banks convert the deposits that they mobilise into loans to the corporate and household sectors. in the 1990s, uganda was a very low intermediation banking system. at the end of the year 2000, commercial bank credit to the private sector was only six percent of gdp and banks only lent out 54 percent of their deposit base to the private sector. by the end of 2012, 80 percent of the banks ’ deposit base had been lent out to the private sector and private sector credit as a share of gdp had risen to 15 percent. in the twelve years since the end of 2000, bank lending to the private sector has risen five fold in real terms. the second impressive feature of the performance of the banking industry in recent years is the expansion of the branch network. in the year 2000, there were 129 bank branches in uganda. at the end of last year this had risen to 495, a four fold increase. in the last five years, uganda has seen an average of 60 new branches

a year opened for business. furthermore, banks are spreading their operations around the country ; there are now 270 bank branches outside of kampala. the expansion of the branch network also reflects greater competitive pressures within the banking market, with banks aiming to attract new customers by expanding into areas where they did not previously have a presence. thirdly, the phenomenal growth of mobile money services has brought access to basic payment services within reach of millions of ugandans who do not have ready access to bank branches or own a bank account. there are currently 8. 9 million registered mobile money customers in uganda, more than one quarter of the entire population. mobile money transactions totalled shs 11. 7 trillion in 2012, a 211 percent increase over the total in 2011. furthermore, mobile banking offers enormous potential for further expansion, especially by broadening the type of service which can be provided to customers. bis central bankers ’ speeches fourthly, the ugandan banking system – and i am here referring to the system as a whole rather than individual banks – has remained in a very sound financial state despite all of the challenges it has faced in recent years emanating from the impact of the global financial crisis, the rise in domestic interest rates and the slowdown in economic growth. the basic indicators with which we measure financial soundness are all positive. the total capital of the banking system is a very healthy 22 percent of its risk weighted assets and the quality of bank capital is very good with core capital comprising 86 percent of the total regulatory capital of ugandan banks. the banking system is profitable, with an annual return on assets of around four percent. non performing loans were only just over four percent of total loans at the end of 2012 ; hence the rapid increase in intermediation that i have just mentioned has not been brought about at the expense of loan quality. these ratios justify a high degree of public confidence in the safety and stability of the financial system and are also testimony to the prudent risk management of commercial banks in uganda. the banks in uganda can take pride in these important achievements and the contribution they have made to the development of the economy since the 1990s. the growth in the intermediation of funds, the expansion of the branch network and the development of new products has enabled the financial sector to generate average real growth of 10 percent per annum since 1999 / 2000 ; it has been one of the fastest growing sectors of the economy in this period. however, i think we must also be very honest in