A typical Monday morning management meeting in a typical Ugandan company starts with a prayer. Some organisations have structured it so well that the prayer is written in advance and distributed to everyone. Others allow a member of staff to pray in their own words.
As a strategy consultant, I often sit in these meetings either as a fly on the wall, observing how decisions are made, or at the front of the room, facilitating a strategy conversation. Either way, I learn a great deal.
Recently, during one such meeting, a member of staff asked me: “Do you think we need to establish a strategy office?” I told them, “Execution is the strategy.”
The CFO does not need someone in a strategy office to remind them to conduct tax planning, optimise working capital or challenge unproductive costs. The Chief Risk Officer does not need a strategy officer to remind them to identify concentrations before they become impairments. The Head of Retail does not need another PowerPoint presentation to understand that inactive accounts do not generate value. You need a business intelligence and data analysis office, but not a strategy office!
This is where many Ugandan financial institutions lose value. The leakage is rarely caused by the absence of strategy documents. Most banks have impressive strategies, balanced scorecards, digital roadmaps and transformation programmes.
The real leakage occurs because ordinary executive responsibilities are treated as strategic projects instead of operating disciplines. And my argument is straightforward.
Financial institutions, or any other company for that matter, are not primarily leaking value because the market is too small, customers are too risky or technology is too expensive. They are leaking value because they continue to operate an old banking model in a radically changed financial landscape.
The sector remains profitable however profitability should not be confused with strategic fitness. A bank can report record profits while losing customer relevance, surrendering payment flows, carrying an inefficient cost base and allocating too much of its balance sheet to assets that do not deepen its customer franchise. That is the contradiction facing Uganda’s financial sector.
The numbers look strong until you ask the second question
Uganda’s banking industry ended 2024 with approximately UGX 53.34 trillion in total assets, UGX 35.42 trillion in customer deposits and UGX 21.57 trillion in net loans. Profit after tax was approximately UGX 1.63 trillion.
At first glance, these are strong numbers. But when you ask: How much of that balance sheet is genuinely financing productive enterprise? The gaps appear.
Net loans represented only 40.4 per cent of total assets. The loan-to-deposit ratio stood at approximately 60.9 per cent. Meanwhile, marketable securities and financial investments amounted to approximately UGX 16.32 trillion, equivalent to 30.6 per cent of total assets.
In simple language, for every UGX 100 held in banking assets, only about UGX 40 was deployed into customer loans, while approximately UGX 31 sat in securities and related investments.
By the end of 2025, the industry had grown further. Total assets reached approximately UGX 61.51 trillion, deposits increased to UGX 41.32 trillion and loans reached UGX 23.64 trillion.
But deposits grew by approximately 16.6 per cent while loans grew by only 9.6 per cent. The loan-to-deposit ratio declined from 60.9 per cent in 2024 to 57.2 per cent in 2025.
Profit after tax, however, increased by approximately 32.6 per cent to UGX 2.16 trillion. This is where must stop applauding and start interrogating if you love the economy.
A 32.6 per cent increase in profit alongside 9.6 per cent loan growth does not automatically mean financial intermediation improved. Part of the increase came from balance-sheet expansion, lower impairment charges and increased income from securities. Provisions declined from approximately UGX 331 billion in 2024 to UGX 169 billion in 2025. That reduction alone released more than UGX 161 billion into reported earnings. The fact is that profitability improved.
What it means is that the improvement was partly driven by lower credit costs and treasury economics rather than a corresponding acceleration in private-sector lending.
That is not necessarily poor banking. Government securities provide liquidity, regulatory capital efficiency and predictable returns but it becomes strategic leakage when the safest asset becomes the default business model.
The government’s Tenfold Growth Strategy acknowledges that the government bond market has absorbed more than half of domestic savings, including about 70 per cent of NSSF investments. Uganda is therefore not suffering from a complete absence of savings but from where those savings prefer to sit.
The private sector does not merely compete against other borrowers, it competes against the sovereign. And the sovereign comes with cleaner documentation, predictable cash flows, established legal remedies and no need for relationship managers to visit a factory in Namanve or a farmer in Hoima.
That is why lending to productive enterprise requires more capability than buying a government security. Unfortunately, capability is exactly where many institutions have underinvested.
Leakage 1: Cheap deposits are not distributed equally
Deposits are not just liabilities. They are strategic raw material. A bank that mobilises low-cost transactional deposits can price loans competitively, protect margins and invest in customer acquisition. A bank that depends on expensive fixed deposits begins every financial year carrying a structural disadvantage. In 2024, Stanbic Bank’s cost of deposits was approximately 0.98 per cent. Its loan yield was approximately 14.99 per cent. That spread is not explained by operational efficiency alone.
Stanbic benefits from a powerful institutional and corporate deposit franchise. It banks major corporations, public institutions, international organisations and large transaction ecosystems. These relationships generate large, stable and relatively inexpensive balances.
The economic moat is not simply the branch network. It is control over financial flows.
Centenary Bank presents a different model. Its estimated cost of deposits was higher, at approximately 2.83 per cent, but its loan yield was approximately 21.17 per cent. It generated UGX 342.3 billion in profit after tax from a loan book of approximately UGX 3.72 trillion.
Centenary’s advantage is not the cheapest money in the market. Its advantage is its ability to distribute higher-yielding credit through a trusted retail and microenterprise franchise. Stanbic wins through low-cost scale. Centenary wins through customer proximity and superior asset yield.
The institutions trapped in the middle often possess neither advantage. They do not control large transactional ecosystems. They also lack the underwriting capability, distribution reach and customer intimacy required to earn high risk-adjusted yields.
They therefore pay more for deposits, lend less productively and carry a heavier cost base. This is not a temporary performance problem. It is a business model problem.
Leakage 2: High yields are being consumed by high costs
A bank does not win merely because it charges customers high interest rates. I think it wins when it converts asset yield into risk-adjusted profit. In 2024, Equity Bank Uganda recorded an estimated loan yield of approximately 21.25 per cent, one of the highest among major commercial banks.
Yet its cost-to-income ratio was approximately 82 per cent and its return on equity was only about 3.1 per cent. Profit after tax was approximately UGX 20.1 billion. The asset yield was strong but the economic conversion was weak. This is what cost leakage looks like.
High loan pricing can be completely consumed by expensive deposits, operating costs, credit losses, underutilised infrastructure and low customer productivity.
Dfcu Bank presents a similar strategic warning. Its estimated loan yield was approximately 17.1 per cent, but its cost-to-income ratio was approximately 82.7 per cent. Return on equity was approximately 11.9 per cent.
The industry’s 2024 cost-to-income ratio was approximately 66.6 per cent before impairment and 71 per cent after impairment. This means that before rewarding shareholders, absorbing unexpected losses or investing in future capabilities, the industry consumed roughly two-thirds of operating income through expenses.
Many executives respond by announcing another cost-cutting programme. That is usually the wrong starting point. Cost is not reduced by circulars instructing staff to print less paper. Cost is reduced by changing the operating model.
A financial institution leaks value when it maintains a branch, a mobile application, agents, relationship managers, call centres and manual back-office processes, all serving the same transaction without retiring any legacy cost.
The institution calls this omnichannel banking. The shareholder experiences it as duplicated cost.
Leakage 3: Digital transformation is adding channels without removing work
Uganda’s financial landscape has changed dramatically. In the year ending March 2026, mobile money transactions reached approximately UGX 392.7 trillion. Active mobile money accounts stood at 36.7 million, supported by about 1.22 million agents.
A transaction flow of UGX 392.7 trillion cannot be directly compared with the banking industry’s deposit stock of approximately UGX 41.3 trillion. One is an annual transaction flow, while the other is a balance-sheet position.
But the strategic message is unmistakable. Transaction gravity has shifted. Customers no longer need a traditional bank account for every payment, transfer, collection or settlement need. Mobile money operators, fintechs, payment aggregators and digital platforms increasingly own the daily customer interaction.
Many banks responded by launching applications. But an application is not a digital business model. A bank digitises when technology changes the economics of serving the customer.
That means:
- a) fewer manual interventions,
- b) faster decision-making,
- c) lower acquisition costs,
- d) improved data capture,
- e) higher transactions per customer and
- f) lower marginal cost per transaction.
When a customer initiates a transaction digitally, but staff must manually reconcile it, verify it, approve it, correct it and call the customer, the process has not been digitised.
The queue has merely moved from the banking hall to the back office. Every digital investment should be required to identify the cost it will retire.
- Which form disappears?
- Which manual approval is eliminated?
- Which reconciliation becomes automatic?
- Which branch activity is reduced?
- Which turnaround time is cut?
- Which vendor cost is removed?
Without those answers, digital transformation becomes expensive theatre.
Leakage 4: Banks are avoiding credit risk instead of mastering it
The purpose of a bank is not to avoid risk. A bank that wants no credit risk should not lend. It should buy government securities and stop pretending to be a financial intermediary. The purpose of banking is to select, price, monitor and manage risk better than competitors.
Uganda’s private sector is dominated by SMEs, family businesses, traders, farmers and informal enterprises. Many do not possess perfect audited accounts, formal governance structures or conventional collateral. The old banking model (the 5Cs of credit, or sort of starting with collateral that overwhelms the other four) sees this as a reason not to lend.
The better model sees it as a data problem to solve. Transaction history, tax payments, mobile money activity, supplier relationships, utility payments, inventory movement, payroll data and value-chain contracts can provide stronger credit insight than a three-year-old financial statement prepared primarily to minimise tax.
The institutions that will win Uganda’s next banking cycle will be those with the best risk intelligence and not with the most conservative credit committees.
At one extreme, the bank rejects good customers because its assessment tools cannot understand them. At the other extreme, it approves large exposures based on reputation, collateral comfort or executive influence, then discovers too late that the underlying cash flow was weak. The first form of leakage destroys revenue, and the second destroys capital.
Leakage 5: The sector measures volumes but not economic profit
A deposit can destroy value when its interest cost, acquisition cost and servicing cost exceed the income generated from deploying it. A loan can destroy value when its yield does not cover funding cost, operating cost, expected credit loss and the cost of capital.
A customer can destroy value when they hold a dormant account, transact through expensive assisted channels and consume compliance and service resources without generating sufficient income.
A product can report revenue while destroying shareholder value. This is why every institution needs to move from accounting profit to economic profit. Economic profit asks a strategic question: After funding costs, direct operating expenses, expected losses and the cost of capital, did this customer, branch, product or segment create value?
Most institutions cannot answer that question at customer level. They therefore manage averages.
And averages are dangerous.
- The average cost of deposits hides expensive institutional deposits.
- The average loan yield hides mispriced large corporate facilities.
- The average non-performing loan ratio hides deteriorating sectors.
- The average customer profitability figure hides millions of dormant or low-value accounts.
A bank can appear healthy in aggregate while value is leaking through individual segments.
Leakage 6: Concentration has become a structural moat
In 2020, the top ten banks accounted for approximately 96 per cent of sector profit and more than 80 per cent of assets, deposits and loans.
Four years later, the pattern remained largely intact.
In 2024, the top ten institutions controlled approximately 80.8 per cent of assets, 81.9 per cent of deposits, 82.8 per cent of loans and 89.8 per cent of profit after tax.
The top five banks alone captured approximately 74.6 per cent of sector profits. This is not simply market concentration but an evidence of compounding advantage.
Large banks attract stronger corporate relationships. Those relationships produce cheaper deposits. Cheaper deposits allow more competitive pricing. Larger transaction flows generate fee income and data. Better data improves risk selection. Higher profits fund technology, talent and distribution.
Scale creates more scale. Smaller institutions often respond by copying the largest banks. They launch similar products, pursue the same corporate customers, open branches in the same locations and procure expensive versions of the same technology.
That is not strategy. A smaller bank cannot defeat a scale leader by becoming a smaller imitation of the scale leader. It must choose a segment where intimacy, speed, specialisation or ecosystem control matters more than absolute size.
What I told the management team
When the staff member asked whether they needed a strategy office, I looked around the room. The CFO was present, the Chief Risk Officer was present, the Chief Operations Officer was present and the business heads were present.
I told them: “You do not need another office to chase you for execution. You need each executive to stop outsourcing accountability.”
The strategy office cannot mobilise deposits for Treasury nor correct poor credit underwriting for Risk.
A strategy office may coordinate reporting, facilitate choices, and track major initiatives but it cannot substitute executive leadership. That meeting reinforced what I have observed since we began publishing the State of Banking Report in 2016.
Uganda’s financial institutions suffer from fragmented accountability and not from a shortage of intelligent people. Everyone manages their function but too few executives manage the economics of the whole institution.
The practical value recovery agenda
The solution is not another broad transformation programme, it is a disciplined value recovery system.
a) Build a monthly value leakage bridge.
The CFO should explain the movement from revenue to economic profit through six drivers: funding cost, asset yield, fee capture, operating cost, credit cost and capital charge. Every unexplained movement should have an executive owner.
b) Measure customer and segment economics.
The bank should know the fully loaded profitability of retail, SME, corporate, public sector, institutional and digital customers. Revenue without servicing cost is not profitability. Interest income without expected loss is not profitability. Profit without a capital charge is not economic value.
c) Make digital investment retire cost.
No digital project should be approved without identifying the manual process, turnaround time, physical infrastructure or operating expense it will eliminate. Digital transformation must reduce the cost-to-serve, not merely improve the appearance of the customer interface.
d) Price relationships, not individual products.
A low-margin loan may be attractive when it brings payroll, collections, foreign exchange, insurance, deposits and supplier payments. A high-yield loan may be unattractive when it consumes excessive capital, requires repeated restructuring and produces no wider relationship value. Pricing must reflect the entire customer relationship.
e) Build specialised risk intelligence.
Banks should develop sector-specific underwriting models for agriculture, trade, manufacturing, schools, healthcare, transport, construction and professional services. Generic credit policies produce generic rejection letters. Specialised knowledge produces superior risk-adjusted returns.
f) Turn branches into commercial platforms.
Every branch should have a clear economic purpose based on its local ecosystem. A branch in Hoima should understand oil and gas suppliers, agriculture, logistics, land transactions and emerging urban services. A branch in Namanve should understand manufacturers, distributors, payroll ecosystems and supplier finance. A branch that cannot explain the economic system around it is merely an expensive address.
g) Hold executives accountable for economic outcomes.
The CFO must own capital productivity. The CRO must own risk-adjusted growth, not just compliance. The COO must own cost retirement. The technology executive must own adoption and unit-cost reduction. Business heads must own customer profitability, not only balance-sheet volumes. Execution is the strategy.
Uganda’s financial sector is entering a period of enormous opportunity. The economy is expanding. Oil production, agro-industrialisation, tourism, minerals, technology, infrastructure and regional trade will create new financial flows. But new money flowing through an old banking model will not automatically create new value.
The institutions that win will not be those with the longest strategy documents, the most committees or the largest technology budgets. They will be those that understand where every shilling enters, where it earns a return, where it consumes capital and where it quietly disappears. Value does not usually leave a bank through one dramatic hole.
It escapes through thousands of accepted inefficiencies.
- An overpriced deposit.
- An inactive account.
- A mispriced loan.
- A manual reconciliation.
- A duplicated channel.
- An unproductive branch.
- A delayed credit decision.
The tragedy is not that the leakage is invisible but that management has learned to live with it.
I remain, Mr Strategy.
