Lending growth climbed to its highest level in seven months in December, an indicator that economic activity is gradually recovering from the impact of the coronavirus pandemic, according to Bank of Uganda statistics.
Total loans by Uganda commercial banks rose at an annual pace of 8.5 per cent in December, up from November’s 7 per cent when growth was unchanged. The growth in private sector credit is consistent with the central bank’s positive short-term outlook, based on eased liquidity conditions — resulting from its “accommodative monetary policy and the associated lower cost of borrowing since June 2020” — and the gradual easing of the lockdown.
The improvement in the indicator — a measure of the financial sector’s contribution to economic activity — is matched by a recent robust survey of purchasing managers in Ugandan private sector companies; together, they suggest that economic activity is firming up following the easing of Covid-19 restrictions.
Two leading indicators recently released by the bank also point to a pickup in growth. The composite index of economic activity rose 4.7 per cent year on year to 145.9 in the fourth quarter of 2021, down from 4.5 per cent in the previous quarter. The overall business tendency indicator, which collects information on current business conditions and expected short-term changes, climbed to 52.8 in January, an eight-month high; an index above 50 implies positive expectations while an index below 50 signals negative business sentiment.
The growth in commercial bank lending was largely due to a rise in personal loans and household loans and credit to the building, mortgage, construction, and real estate sector. Personal and household loans increased by 19.7 per cent on-year, boosted by loans for the purchase of durable goods. Credit extended to the building, mortgage, construction, and real estate sector was up 14.5 per cent, largely due to growth in lending to property developers, estate agents, and letting agents.
In addition, loans to the manufacturing sector climbed by 15.9 per cent mainly due to credit to food, beverages, and tobacco entities, up 27.7 per cent from a year ago.
On a monthly basis, bank lending recorded its strongest growth since June 2020, rising 3.8 per cent down from 0.7 per cent a month ago. The jump was mainly driven by a 7.3 per cent increase in personal loans and household loans on the back of growth in loans for the purchase of durable goods.
Further, credit to the agriculture sector rose 6.2 per cent on-month, driven by increased lending for production. Retail trade loans also contributed significantly to overall growth, increasing by 6.7 per cent.
