The liquidity ratio in Ugandan banks has improved by 6.7%, an indication that the banking sector has adequate capital buffers.
Capital buffers are capital requirements commercial banks are required to hold to protect against shocks.
“The ratio of liquid assets to total deposits increased from 43.4% in June 2016 to 50.1% in June 2017, well above the regulatory minimum of 20 percent,” Charles Abuka, the director, financial stability at Bank of Uganda told Uganda Business News in an interview.
All banks also meet the minimum requirement of 20% for the ratio of liquid assets to total deposits, a second liquidity measure, Dr Abuka said.
According to the central bank’s annual supervision report, the ratio of liquid assets to total deposits increased from 46.4% in December 2015 to 51.5% in December 2016, well above the regulatory minimum of 20%
Commercial banks held Shs8,400bn in liquid assets at the end of December 2016, 21.6% more than the level held in December 2015.
The Central Bank says the growth of liquid assets was largely due to an increase in banks’ balances held with BoU and a rise in holdings of government securities, which grew by Shs900bn trillion and Shs1,000bn respectively in 2016.
The liquidity coverage ratio, which measures a bank’s ability to withstand a 30-day stress scenario, shows that on average, was at 350.3% at the end of December 2016.