• Business
  • Entertainment
  • General
  • Politics
  • Sports
  • Tech
Kenyan Tribune
  • Business
    • Continental airlines body roots for open skies : The Standard
    • Sistema.bio founder visits regional offices in Kenya : The Standard
    • CDC Group Opens Nairobi Office
    • KRA pushes for early filing of tax returns : The Standard
    • Mombasa tea trade to get digital facelift : The Standard
  • Entertainment
    • Kaberia downplays talks of power struggle with Echesa – Nairobi News
    • DK Kwenye Beat deletes all photos on Instagram
    • Firearm evaluation exercise at Mathare Hospital marred by bribery claims – Nairobi News
    • Bahati’s baby mama mourns the death of close friend
    • Jussie Smollett thrown out of ‘Empire’ for staging homophobic attack – Nairobi News
  • General
    • Nurses in Busia suspend strike to give reconciliation talks a chance
    • KCB road to the Masters Series underway at Sigona Golf Club
    • EATING OUT: Everything from soup to nuts
    • DPP to appeal against freeing Sophia Mbogo on bond
    • Activist Caroline Mwatha to be buried Saturday
  • Politics
    • BREAKING NEWS!! Governor Okoth Obado Rushed to Kenyatta National Hospital
    • Catholic Priest Who Died for 48 Hours Claims That Raila Odinga Is An Angel Sent By God![VIDEO]
    • PLO Lumumba Denied Entry Into Zambia Due To Security Considerations
    • How and Why Joe “Jowie” Irungu Killed Monica Nyawira Kimani
    • Exclusive: DP Ruto Sparks Diplomatic Row With DR Congo over Smuggled Gold worth sh14billion
  • Sports
    • Mourinho upbeat as Pogba points way for United in Europe
    • Lukaku sends powerful message to fans about Mourinho’s emotions
    • Former Spain boss Del Bosque tips Bolt to shine as a defender
    • Athletics officials cleared of extortion charges
    • Redsan set to launch album in a star-studded concert
  • Tech
    • DC Characters Who Should Join The Team In Suicide Squad 2
    • How A Great Logo Design Can Give Your Business A Boost
    • Meet The Ugandan Woman Who Brought Affordable Eye Care To Children Using The Power Of Virtual Reality Technology
    • Apple just introduced the iPhone XR, a lower-cost iPhone with a big screen that comes in 6 colors (AAPL)
    • NJIHIA: Building Africa’s second last mile cloud platform
  • Facebook

  • Twitter

  • Instagram

  • RSS

Business

Uganda’s Declining Foreign-Currency Lending a Credit Positive – Moody’s

Uganda’s Declining Foreign-Currency Lending a Credit Positive – Moody’s
kenya-tribune
February 11, 2019


Uganda’s declining foreign-currency lending is a credit positive for its banks as it will support their asset quality and reduce negative pressure on some banks’ foreign-currency funding and capital adequacy, says Moody’s Investor Service.

On 5 February, Bank of Uganda, the country’s central bank,
released statistics showing that the ratio of foreign-currency loans to total
loans declined to 37.9 per cent in 2018 from 41.6 per cent in 2017 and 44.3 per
cent in 2016.

Ugandan banks’ foreign-currency loan volumes, predominantly
in US dollars, contracted 1 per cent in 2018 when adjusted for the depreciation
of the local currency, the Ugandan shilling, after declining 2 per cent in
2017.

Although the contraction erodes revenue from this income
stream, banks are increasing their local-currency lending, supporting their
lending fee income and interest income. In 2018, local- currency loans
increased by 17 per cent, suppressing the proportion of foreign currency loans
to 37.9 per cent, the lowest in the past five years (see Exhibit 1).

Declining foreign-currency loans will ease asset risk
because banks’ exposure to shilling depreciation will diminish. Between 2015
and 2018, the shilling-to-dollar exchange rate depreciated to UGX3,706 from
UGX2,855, exposing banks’ unhedged clients to elevated default risk.

“We believe some foreign-currency loans were extended to
borrowers whose revenue is in shillings, and a weaker shilling would require
higher shilling cash flow for the borrowers to meet their foreign-currency loan
repayments. The inability of such unhedged borrowers to increase prices when
the shilling is weak erodes their operating margins and cash flow and diminishes
their repayment capacity,” says Moody’s.

Read Also:  Kenya police gets a new face, structure

Although disclosure is limited, especially for smaller
banks, foreign currency loans in 2017 contributed 43 per cent of total loans
for Stanbic Bank Uganda Limited, the largest bank in the system, and 47 per
cent of dfcu Group, the second-largest bank (the two banks’ combined market
share by assets was about 32 per cent in 2017).

Defaults on foreign-currency loans have generally been
higher than on local-currency loans, with a nonperforming loan ratio of 4.6 per
cent in June 2018, versus 4.3 per cent for local-currency loans, and 6.6per
cent in June 2017 versus 5.9 per cent for local-currency loans (see Exhibit 2).

Fewer foreign-currency loans also will lessen foreign
currency funding pressures for banks that depend on wholesale market funding to
support their foreign currency assets. Uganda’s large current account deficit,
at about 5 per cent of GDP, limits prospects of strong dollar deposit formation
in the system, and any substantial foreign currency lending would require banks
to rely on more expensive and confidence-sensitive market funds.

As of December 2017, dfcu Group’s proportion of foreign-currency
loans to deposits was 109 per cent, creating a funding gap, while its local-
currency loans-to-deposits ratio was only 50 per cent.

“We expect that the ratio declined to below 100% in 2018,
removing the funding gap, as the bank cut back on foreign-currency lending and
continued the downward trend from 116% in 2016,” sasys Moody’s.

For Stanbic, foreign- currency loans-to-deposits ratio is
lower at 76 per cent, but remains higher than the 50 per cent for the
local-currency portfolio. However, some of the market funds, especially from
developmental financial institutions, are of long-term nature and they limit
banks’ roll-over risk.

Read Also:  Power transmission firm Ketraco sees new line spurring industries

Ugandan banks’ capital adequacy ratios will also benefit
from falling foreign currency loans because a weaker shilling inflates the banks’
risk weighted assets when the loans converts to a higher local-currency amount.

“We estimate that a 10% depreciation of the shilling would
reduce capital adequacy ratio by about 90 basis points for banks with small
open positions,” added Moody’s.

The shilling’s 12-month forward contract points to a
weakening exchange rate of UGX3,981 per US dollar. Ugandan banks’ capital
adequacy ratio will remain relatively solid. As of June 2018, the sector’s
average ratio of regulatory capital to risk-weighted assets was 21.8 per cent


Do you have a hot story, expose or tip that you would like to inform us about? If so, please email us NOW on news@kenyantribune.com or on Telegram.

Loading...
Related Items
Click to add a comment
Business
February 11, 2019
kenya-tribune

Related Items

More in Business

Continental airlines body roots for open skies : The Standard

kenya-tribuneFebruary 23, 2019
Read More

Sistema.bio founder visits regional offices in Kenya : The Standard

kenya-tribuneFebruary 23, 2019
Read More

CDC Group Opens Nairobi Office

kenya-tribuneFebruary 23, 2019
Read More

Mombasa tea trade to get digital facelift : The Standard

kenya-tribuneFebruary 23, 2019
Read More

Cane farmers protest want Sh2.7 billion listed beneficiaries published : The Standard

kenya-tribuneFebruary 23, 2019
Read More

Kenya Power profit weighed down by bad debt provision, rising costs : The Standard

kenya-tribuneFebruary 23, 2019
Read More
Scroll for more
Tap
  • Popular

  • Latest

  • Comments

  • Ukambani governors skip Kalonzo’s meeting
    GeneralFebruary 8, 2019
  • Leaders oppose scrapping of woman representative seat
    GeneralJanuary 29, 2019
  • Wiper dares Kibwana to ditch Kalonzo party
    GeneralFebruary 1, 2019
  • Joho, Kabogo catch handshake fever in push for ‘national unity’ – PHOTOS – Nairobi News
    EntertainmentJanuary 29, 2019
  • EACC faulted on Anglo Leasing data
    BusinessJanuary 28, 2019
  • Apex Court upholds Laikipia Governor’s election – KBC
    GeneralFebruary 8, 2019
  • Growing list of young lives snuffed out in cold blood
    EntertainmentFebruary 1, 2019
  • Mombasa slum residents call for completion of flyover
    GeneralFebruary 9, 2019
  • Government now suspends car-free days in city center for two weeks – Nairobi News
    EntertainmentJanuary 30, 2019
  • NGWIRI: Should governors wish to stay in power, let them run for president
    GeneralFebruary 8, 2019
  • Continental airlines body roots for open skies : The Standard
    BusinessFebruary 23, 2019
  • Nurses in Busia suspend strike to give reconciliation talks a chance
    GeneralFebruary 23, 2019
  • Sistema.bio founder visits regional offices in Kenya : The Standard
    BusinessFebruary 23, 2019
  • Kaberia downplays talks of power struggle with Echesa – Nairobi News
    EntertainmentFebruary 23, 2019
  • KCB road to the Masters Series underway at Sigona Golf Club
    GeneralFebruary 23, 2019
  • DK Kwenye Beat deletes all photos on Instagram
    EntertainmentFebruary 23, 2019
  • EATING OUT: Everything from soup to nuts
    GeneralFebruary 23, 2019
  • DPP to appeal against freeing Sophia Mbogo on bond
    GeneralFebruary 23, 2019
  • Firearm evaluation exercise at Mathare Hospital marred by bribery claims – Nairobi News
    EntertainmentFebruary 23, 2019
  • Activist Caroline Mwatha to be buried Saturday
    GeneralFebruary 23, 2019
  • JS says:

    Fantastic article

Dont Miss!

  • Continental airlines body roots for open skies : The Standard
    BusinessFebruary 23, 2019
  • Nurses in Busia suspend strike to give reconciliation talks a chance
    GeneralFebruary 23, 2019
  • Sistema.bio founder visits regional offices in Kenya : The Standard
    BusinessFebruary 23, 2019
  • Kaberia downplays talks of power struggle with Echesa – Nairobi News
    EntertainmentFebruary 23, 2019
  • KCB road to the Masters Series underway at Sigona Golf Club
    GeneralFebruary 23, 2019
  • DK Kwenye Beat deletes all photos on Instagram
    EntertainmentFebruary 23, 2019
  • EATING OUT: Everything from soup to nuts
    GeneralFebruary 23, 2019
  • DPP to appeal against freeing Sophia Mbogo on bond
    GeneralFebruary 23, 2019
  • Firearm evaluation exercise at Mathare Hospital marred by bribery claims – Nairobi News
    EntertainmentFebruary 23, 2019
  • Activist Caroline Mwatha to be buried Saturday
    GeneralFebruary 23, 2019

Copyright © 2018 Kenyan Tribune..

Trader claims six vehicles : The Standard
Illegal matatu termini suspended : The Standard