bank of uganda speech by prof. emmanuel tumusiime - mutebile, governor, bank of uganda chief guest the annual dinner of the uganda institute of banking and financial services friday, november 25, 2016 kampala serena hotel good evening ladies and gentlemen. let me begin by commending the institute of banking and financial services for the excellent work it is doing, especially in providing professional training for staff of the financial services industry. the institute is making a truly invaluable contribution to the success of the industry in uganda. as we approach the end of the year, i would like to take this opportunity to reflect on the last 12 months from the standpoint of the banking industry and try to draw some lessons. we cannot deny that it has been a difficult year for the industry, with very low asset growth, a sharp deterioration in asset quality and a decline in returns on equity. the key challenge has been the rise in nonperforming loans ( npls ), from 3. 8 percent of the total loans of commercial banks in september 2015 to 7. 7 percent in september 2016. over the year to september 2016, the commercial banks had to make provisions of shs 345 billion for npls, which is double the amount set aside in the previous 12 months. these provisions squeezed profits, with average after tax returns on equity falling to 14. 9 percent in the 12 months to september 2016 compared to 17. 1 percent in the previous 12 months. the squeeze on bank profitability would have been much worse were it not for the fact that banks widened their net interest margins. the high interest rates which prevailed over the course of most of the last 12 months helped banks to recoup some of the losses they suffered as a result of bad debts. on a more positive note, the latest quarterly data indicates that we may have passed the peak of npls in the banking system. in absolute terms, the value of npls fell by 6 percent between july and september of this year, although it is still too early to be very confident that npls are really on a downward trend. the deterioration in loan quality has been one of the major factors impeding the growth in lending to the private sector. over the 12 months to september 2016, the value of loan applications rose, albeit at a relatively modest 7 percent compared to the previous 12 months, whereas the value of loans actually approved by banks fell marginally, by 2 percent. this suggests that the main constraint to loan growth has

the eac monetary union. a durable monetary union depends on a high degree of sustainable convergence regarding price stability, sound fiscal and monetary policies, exchange rate stability and convergence of long - term interest rates in the region. ultimately, the strategic framework should stress the application of the convergence criteria, institutional arrangements for eac monetary union and a clear timetable for the preparations necessary to ensure successful establishment of a unified regional currency and central bank. governors and colleagues, the fast tracking of eac monetary union is upon us, and we must rise to the occasion and meet the challenge head on. we must be strong advocates of this noble cause and convert the sceptics. we must seize the day or as they say in latin, carpe diem! thank you.