Ugandan commercial banks and other financial institutions approved only Shs3.4 trillion in loans between February 2024 and April 2024 amid fear of risks occasioned by failure to pay back.
According to the Bank of Uganda State of the Economy Report for June 2024, while Ugandan businesses and individuals applied for loans from financial institutions worth Shs5.1 trillion, only loans worth Shs3.4 trillion were approved.
As a result, annual average Private Sector Credit growth moderated to 7.8 percent in the three months to April 2024, down from 8.4 percent in the three months to January 2024.
“Both gross credit extensions and recoveries declined in the three months to April 2024, but the decline in gross extensions was faster than the decline in gross recoveries, as banks increasingly cut back on renewing credit lines for borrowers. Demand and Supply of credit remained on a downward trajectory,” the report reads in part.
The report says government intervention programmes such as the Parish Development Model (PDM), Emyooga, and fintechs have complimented the banks’ credit to the private sector.
According to the Bank of Uganda, lending rates for commercial banks rose in the three months, averaging 20.8 percent, just 20 basis points above the reading in the three months to January 2024. Similarly, the weighted average shillings and foreign currency lending rates rose in the three months to April 2024, reflecting the increase of the CBR and the associated tight liquidity and financial conditions.
The weighted average shilling lending rate reversed the downward trend observed since last year, rising to 17.7 percent in the three months to April 2024 but remains below the level for the same period last year.
The lending rate on foreign currency-denominated loans continued to rise, reaching an average of 9.1 percent about 130 basis points above the rate charged the same period a year back reflecting the tight domestic and global monetary conditions.
The rise in lending rates was most pronounced in the Agriculture, Manufacturing, Trade, and Housing sectors. A moderate decrease was observed in Personal loans, Transport and Communications. Sectors.
Overall, lending rates are expected to rise and remain elevated owing to tightening financial conditions amid the increasing government issuances of securities in the domestic market.
