depreciation. finally, recently, the dollar has strengthened against the major currencies as a result of expectations that america will be the first among the industrialized countries to raise interest rates. financial sector the latest quarterly data available is for september 2014 and this indicates that the banking system is financially very sound and well capitalized. asset quality has improved. the nonperforming loan ratio has declined from 6. 2 percent of the loans in march 2014 to 5. 3 percent of the loans in september 2014. banks ’ profitability has reduced partly as a result of loan provisioning and a slight drop in the net interest margin. the banks ’ total regulatory capital position remains very strong at 22. 5 percent of risk weighted assets as at end of september 2014 which is almost double the statutory minimum of 12 percent. the banking systems ’ bis central bankers ’ speeches average return on assets and equity declined to 2. 2 percent and 13. 1 percent respectively in the year to september 2014 from 3. 1 percent and 18. 8 percent in the previous 12 months. private sector credit with regard to private sector credit growth, since the start of 2014, private sector credit has recovered with annual growth increasing to 13 percent as of end of september 2014. the building and construction sector, trade and household loans continued to account for the bulk of the ps credit. the three sectors together ( building and construction sector, trade and household ) accounted for over 55 % of banking systems ’ outstanding credit to the private sector since february 2014. annual growth of ps credit during 2014 / 15 is projected at 15 percent. bis central bankers ’ speeches

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