This document provides an overview of key financial ratios used to analyze the financial performance and health of banking institutions. It discusses ratios categorized as profitability, liquidity, asset quality, efficiency, and capital/solvency ratios. Specific ratios covered include net margin, cost-to-income, return on equity, return on assets, current ratio, non-performing loans ratio, debt-to-equity, and capital-to-risk weighted assets. The document emphasizes that analyzing multiple ratios together provides a fuller picture of a bank's financial standing than any single ratio alone.
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Accounting Framework
Posting and Processing Transactions
Year- End Adjustments and Provisions
Preparing Final Accounts
Introduction to Financial Reporting Standards
Published Accounts
MODULE COVERAGE
1
Financial Ratios and Projections
Elements of Taxation
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Ratio analysis for interpreting financial statements
• A ratio is a numerical value calculated by dividing one number (or a combination of
numbers) by another and it can be presented as numbers, currency value or
percentage.
• Ratios tell a more complete story of proportionate relationships between
performance variables than we can get from absolute figures in the financial
statements. It can be used to compare the risk and return relationships of firms of
different sizes. It is defined as the systematic use of ratio to interpret the financial
statements so that the strengths and weaknesses of a firm as well as its historical
performances and current final condition can be determined.
• A single ratio in itself has limited or no value. A set of ratios read in combination
will have substantial value in aiding the drawing of conclusions and eventual
decision making. Ratio analysis involves comparing one figure against another to
produce ratios, and assessing whether the ratio indicates a weakness or strength.
The comparison can be with other institutions, or for the same institution but over
different periods.
• Because Ratio Analysis is based upon accounting information, its effectiveness is
limited by the distortions which arise in financial statements due to such things as
Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be
used as a first step in financial analysis, to obtain a quick indication of a firm's
performance and to identify areas which need to be investigated further.
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Rationale of Ratio Analysis:
The rationale of ratio analysis lies in the fact that it makes related information
comparable. A single figure by itself has no meaning but when expressed in terms
of a related figure, it yields significant inferences, e.g if a firm’s net profit is say
100M; does it show how adequate this firm is?
The figure of net profit has to be considered in relation to other variables. How does it
stand in relation to sales? What does it represent by way of net capital employed
or return on total assets used?
In banking, the most useful financial ratios can be broadly grouped into the following
categories;
• Profitability ratios
• Liquidity ratios
• Portfolio quality ratios
• Efficiency ratios
• Capital ratios
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1. Profitability ratios
Apart from creditors, owners and managers of a firm are interested in the financial
soundness of the company.
The operating efficiency of a firm is ultimately determined by its profits.
Profitability ratios can be determined on the basis of either sales or investments.
Profitability ratios indicate how well an institution’s resources have been utilized to
generate income or returns.
These ratios indicate the extent of an institution’s profitability in relation to its
business size, turnover, capital and other aspects.
Profitability ratios usually include sets of items from the Income Statement and or
from Balance Sheet.
There are many profitability ratios. Here, we look at some examples;
a. Net Margin (NM)
b. Cost-to-Income Ratio (CIR)
c. Return on Equity (ROE)
d. Return on Assets (ROA)
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a. Net Margin (NM)
Net margin compares the net operating profit to the gross revenue or turnover. It
measures the bank’s ability to convert turnover into profit through controlling costs
and expenses.
Formula: Net profit before tax
Total turnover or gross revenue
b. Cost-to-Income Ratio (CIR)
The cost-to-income ratio is both an efficiency and profitability measure. It shows the
efficiency of a firm in minimizing costs while increasing profits. The more efficient a
bank is, the more profit it generates. The lower the cost-to-income ratio; the more
efficient and profitable the institution is running. The reverse also holds.
Formula: CIR = Total Operating Expenses
Total Operating Income
c. Return on Equity (ROE)
This is a key measure for financial performance, indicating a bank's ability to generate
earnings using shareholder capital. Over time, ROE is one of the major indicators of
the rate at which a bank creates shareholder wealth.
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d. Return on Assets (ROA)
This ratio presents measurement of the income the bank generates from the
utilization of all of its assets, whatever the underlying capital structure is.
A low ratio indicates an inefficient use of business assets whereas a high one means
efficient use of assets.
Formula:
Return on Assets = Net Income after taxes
Average total assets
2. Liquidity ratios
Liquidity refers to the ability of an organization to meet its obligations as and when
they fall due. It depends on the availability of cash and near cash assets in relation
to the liabilities of the organization.
When an institution fails to meet its debt obligations, its creditors can potentially place
it under liquidation.
It is therefore imperative that the management of a bank maintains appropriate
liquidity levels to enable the institution meet its obligations as they fall due.
Liquidity indicators include the following ratios
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a. Liquidity ratio
The liquidity ratio measures an institution’s proportion of liquid assets to the total
assets. Liquid assets are cash and assets that can easily be converted into cash. The
ratio therefore measures how easily an organization can meet its obligations such
as savings withdrawals and debt service.
Overall, the institution has to balance between holding cash or liquid assets and
putting cash into good yielding investments like the loan portfolio. The higher the
liquidity ratio, the lower the income earned by an entity and while the lower the
ratio the more likely it is for the entity to suffer liquidity problems.
Two ways of calculating the current/liquidity ratio are;
Formulae:
Liquid assets to total assets
Under this method, Liquidity ratio = Cash and near assets
Total assets
Liquid assets to total liabilities
Under this method, Liquidity ratio = Cash and near assets
Total current liabilities
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b. Current ratio
The current ratio compares the institution’s total current assets with its total
current liabilities. It measures the extent to which short term assets are
financed by liabilities of corresponding maturity.
If the short term or current assets are far less than the current liabilities, it
could trigger an unpleasant situation of difficulties in meeting current
liabilities as they mature.
Formula:
Current ratio = Total current assets
Total current liabilities
Quick (acid test) ratio = Total Current assets- Inventory (stock)
Total current liabilities
It is the ratio of quick assets to total liabilities. Quick assets are those current
assets that can be converted into cash immediately without diminution of
value. The current assets excluded are pre-paid expenses and inventory.
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3. Asset (or portfolio) quality ratios
a. Loan loss (write-off) ratio
This ratio indicates amount of loans written off (Removed from the balance sheet) as a
percentage of average portfolio during the period.
The loan loss ratio provides an indication of the past quality of the loan portfolio. Its
usefulness is strongly dependent on the institution’s write off policy.
Formula:
Loan loss ratio = Amount written off year
Average gross portfolio
b. Non Performing Loans (NPL) ratio
Non-performing loans are loans that are no longer producing sure income for the bank
because the have been classified as substandard, doubtful or loss.
Loans become non-performing when borrowers default on loan servicing for a
specified period. A smaller NPL ratio indicates a good or healthy asset quality while
a larger (or increasing) NPL ratio indicates poor assets quality.
Formula:
NPL ratio = Non-performing loans
Gross loan portfolio
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c. Portfolio Yield
This ratio measures how much the institution received in interest and fees during the
period relative to its average outstanding loan portfolio. Yield is the initial indicator
of a loan portfolio’s ability to generate revenue with which to cover financial and
operating expenses.
Formula;
Portfolio Yield = Income from loan portfolio (including interest and fees)
Average gross portfolio
4. Efficiency ratios
a. Cost-to Income ratio (CIR)
This was explained as a measure of both efficiency and profitability. It shows the
bank’s efficiency in minimizing costs while optimizing profits.
b. Loans to Assets ratio (LTA)
This compares the loan portfolio to the bank’s total assets. On the positive side, it
measures the efficiency of the bank in deploying its assets for optimum income
generation.
On the flip side, beyond a certain level a higher ratio indicates that a bank is highly
loaned up, negatively affecting its liquidity. The higher the ratio, the more sensitive
a bank may be to loan defaults.
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Formula:
LTA = Loans and advances
Total assets
Loans to Deposits ratio (LTD)
This compares the loans/ advances with the volume of customer deposits. It therefore
shows the bank’s level of efficiency in placing its deposit liabilities into high
earning assets
Formula:
Loans-to-Deposits (LTD) = Value of loans and advances
Customer deposits
5. Solvency/ capital adequacy ratios
Solvency ratios are financial indicators that show an institution’s ability and capacity to
meet its liabilities from its assets (leverage of the bank).
Solvency indicators are therefore concerned with how much an BANK owes in relation
to its asset values.
When an institution is heavily in debt and yet it continues earning a modest net
income, it incurs high interest charges which will eventually lead to illiquidity and
perhaps liquidation.
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a. Debt to Equity Ratio (DER)
The debt equity ratio is the simplest and best known measure of capital adequacy,
measuring the overall leveraging or gearing of the institution.
The Debt/ Equity ratio is of particular interest to lenders, regulators and depositors
because it indicates how much of a safety cushion (in the form of equity) the
institution has available to absorb losses before the depositor or lender is put at
risk.
Formula;
DER = Total liabilities
Total equity
b. Capital to Risk-weighted Assets Ratio (CRAR)
CRAR indicates the stability of a bank. A bank's capital is the net claim on the assets by
shareholders.
It is the amount that would remain if the bank’s assets were sold at their book value
and all the creditors were paid off.
A good measure of a bank's health is its CRAR, which is usually required to be above a
prescribed minimum.
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Formula;
CRAR = Capital
Total value of Risk weighted assets
Debt to total Capital ratio = Total debt
Total assets
It indicates the proportion of total assets financed by owners.
Interest coverage ratio = EBIT
Interest
It measures the debt servicing capacity of the firm in so far as fixed interest
on long term loans is concerned. For banks, this can either be equity(core
capital) or a combination of equity and quasi-equity (total capital)
13
Editor's Notes
ByIf all adjusting entries have been made, and a trial balance done, preparing financial statements is really just a matter of putting the trial balance amounts onto properly formatted statements.
As already discussed, financial statements prepared by most banks are;
The Balance Sheet
Income Statement (Statement of comprehensive Income)
Cash Flow Statement
Portfolio Report (optional but important)
the end of this unit, the students should be able:
Explain the end of period adjustments that are made to the various accounts.
Pass the end of period adjustments
Close off the ledger accounts
To extract the account balances after closing of the accounts
Prepare the trial balance
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
A moratorium on new commercial bank licenses was declared in 2004, with the passage of the Financial Institutions Act 2004 by Parliament, which established new banking institution classification guidelines, shifting the focus and modality of supervision from forensic to risk-based, and introduced robust, tight rules for management and governance of banks in Uganda.
The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed. These included Kenya Commercial Bank, Equity Bank and Fina Bank, all from Kenya. Global Trust Bank and United Bank for Africa which trace their roots from Nigeria were also licensed during this period. The others were Ecobank; headquartered in Togo and Housing Finance Bank an indigenous bank.
Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of October 2010[update], there were twenty-two (22) licensed commercial banks in Uganda, with nearly four hundred (400) bank branches and a total of almost six hundred (600) ATMs.
In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013. Any new commercial bank entering the Ugandan market effective November 2010 had to have a minimum capitalization of UGX 25 billion. Today (June 2012), most of the banking activity is concentrated around Kampala and other urban centers, leaving most Ugandans out of the formal financial sector.
