Uganda’s Financial System Remains Stable Despite Rising Global Risks – Bank of Uganda

Uganda’s financial system remained stable over the year to September 2025, supported by strong domestic economic conditions, according to the Bank of Uganda’s latest Quarterly Financial Stability Review. However, the central bank cautioned that risks to financial stability are beginning to rise, mainly due to pressures from the global economy.

In its assessment, the Bank of Uganda said that despite heightened global macro-financial risks, the country’s banking system remains resilient. This stability, the Bank noted, is supported by strong capital and liquidity buffers, as well as improved asset quality and profitability across the financial sector.

Global and Domestic Economic Outlook

Globally, economic growth is expected to improve slightly in 2025, driven largely by stronger performance in emerging and developing economies. Advanced economies are projected to grow more slowly, reflecting tight financial conditions and lingering geopolitical tensions.

Domestically, Uganda’s economy is projected to grow between 6.5 and 7.0 percent in the 2025/26 financial year, with medium-term growth expected to strengthen to about 8 percent. The Bank attributed this outlook to increased investment in extractive industries, government wealth creation initiatives such as the Parish Development Model and Emyooga, and a supportive monetary policy environment.

Inflation continued to decline over the review period. Headline and core inflation fell to 3.4 percent in October 2025, largely due to lower prices for education services, accommodation, and improved food supply. The Bank said inflation remains well aligned with its medium-term target of 5 percent.

Banking Sector Performance

The banking sector continued to register steady credit growth, with total loans increasing by 9.5 percent to Shs24 trillion by September 2025. While lending standards remained cautious, the Bank expects credit growth to strengthen further, supported by improved economic activity and enhanced credit infrastructure.

Asset quality improved significantly, with the ratio of non-performing loans declining to 3.6 percent from 4.9 percent a year earlier. The improvement was attributed to better borrower repayment capacity and active loan restructuring by financial institutions.

Liquidity conditions across the sector also strengthened. Customer deposits grew to Shs41.2 trillion, accounting for more than 84 percent of total funding. All supervised financial institutions complied with statutory liquidity requirements, while capital adequacy levels remained well above regulatory thresholds.

Risks and Policy Outlook

Despite the positive performance, the Bank of Uganda warned that external risks remain a concern. These include global trade uncertainties, geopolitical tensions, rising sovereign debt levels, and the risk of sudden capital outflows from emerging markets.

The central bank said it will continue to closely monitor these risks through stress testing, targeted supervision of high-risk institutions, and the continued use of macroprudential policy tools to safeguard financial stability.

Overall, the Bank of Uganda concluded that systemic risks remain moderate and that Uganda’s financial system is well-positioned to withstand potential shocks, supported by low inflation, strong capital buffers, and sustained confidence in the domestic economy.