Macroeconomic determinants of the financial performance in Uganda

Abstract

The purpose of this study was analysis of macroeconomic factors affecting the performance of the financial sector in Uganda. Secondary data was used for this study. The data set of annual observations spanning from 1991 to 2019 was obtained from the Bank of Uganda Website. The STATA version 15.0 was used to analyze the data. Multivariate analysis was done using the Ordinary Least Squares (OLS) since almost all the variables of interest were linear and had minimum variance. The study revealed a positive and significant effect of money supply on financial performance of commercial banks as well as a negative and significant effect of Cash Reserve Ratio on financial performance of commercial banks. The model revealed that an increase in private sector credit weakened the financial performance of the financial institutions. This exposed the risky nature of the Ugandan borrowers which has inhibited financial performance and frustrated economic development in the country. Banks in Uganda should avail themselves with additional benefit of profit enhancement component of minimum rediscount rate for better implementation rather than hedging the risk of borrowing from BOU.