Uganda banks’ lending to businesses and households grew at the fastest rate in four years in January, according to Bank of Uganda data, even as policymakers sounded the alarm over weak credit to the trade sector and several service sub sectors.
Total outstanding commercial bank loans to the private sector rose to Shs16.9 trillion in January, up 13.5 per cent compared to the same month last year — the fastest growth rate since January 2016. On a monthly basis, loans were 0.5 higher per cent than in December, the slowest expansion in three months.
The annual increase came mainly because of a growth in credit to community, social, and other services, up by Shs729.5bn compared to a year ago, due largely to a rise of Shs643bn in loans to membership organisations and community development services.
The community, social, and other services sector includes “educational, research and scientific, welfare institutions, business, professional and labour associations, religious organisations and all community related services not mentioned above,” according to the central bank.
In addition, outstanding loans to the transport and communications sector grew 24.2 per cent yearly to Shs989.2bn, driven by an increase of Shs393.5bn in credit to telecommunications entities. Loans to the transport and communications sector were boosted by a reduction in lending rates — to an average of 19.2 per cent in the quarter to January from 22 per cent in the previous quarter, according to the Bank of Uganda — as telecom entities “borrowed to finance capital expenditure, meet their licence renewal fees and pay their year-end corporate taxes”.
In its monetary policy report for February, the central bank lending to the private sector was “likely to remain subdued in the short-term due to weak economic growth and increased risk aversion by lenders.”
The Bank noted that the value of loan applications and approvals in the quarter to January was “significantly below” that of the previous quarter, reflecting risk aversion by commercial banks due to the Covid-19 pandemic.
The central bank was particularly concerned about lending to the trade sector which continued to decline [in the quarter to January] and subdued credit to certain service sub-sectors, such as education, hotels, bars, and restaurants, that were closed because of coronavirus restrictions.
Indeed, loans to the trade sector fell for the fifth straight month at the steepest rate, 4.7 per cent, in that period mainly on a decline in credit to wholesale trade.
The central bank also noted that bad debts could rise in the next few months as loan moratoriums granted to borrowers in sectors weakened by Covid-19 restrictions mature.
