The majority of commercial banks maintained their lending standards in the three months to September, albeit with a tendency to tighten for businesses and ease for households, reflecting the uncertainty caused by the World Bank funding freeze and the slow pace of economic recovery.
According to a central bank report, 80.2 per cent of lenders reported no change in standards for approving loans to businesses during the quarter, while 17.3 per cent said standards had tightened and 2.5 per cent said they had eased. This resulted in a tightening balance of 14.8 per cent, lower than the 18.9 per cent reported in the quarter to June but higher than the 11.4 per cent tightening balance expected in the second quarter survey.
Lending standards tightened at a faster pace for both small and medium-sized enterprises and for large enterprises, and for both short-term and long-term loans, the latter at a faster pace. In addition, criteria were stricter across all sectors, except for electricity and water, which recorded a net easing of 1.8 percent.
Banks also relaxed their lending criteria to households, resulting in a balance of 12.7 per cent, up from 2.3 per cent in the previous quarter. This figure is “consistent with past trends,” but falls short of the 17.7 per cent forecasted in the prior survey.
The report attributed the tightening of lending standards for businesses to the continued reluctance of commercial banks to lend “as a result of the suspension of World Bank funding, which has led to delayed government payments to contractors and the slowed recovery of the economy.”
In contrast, the easing of credit criteria for electricity and water utilities was the result of funds allocated to the sector by international organisations. Similarly, consumer credit conditions were eased due to seasonal demand for school-related expenses and “the stability of household incomes as employment levels improve.”
The World Bank halted new funding to Uganda in July after parliament passed yet another anti-homosexuality law. A bank official said Monday that funding will resume once it is satisfied that Uganda has taken steps to ensure that gay and transgender people are not excluded and harassed in its programmes. Government officials expect this to happen early next year, Bloomberg reported last month. The bank’s portfolio of projects in Uganda stood at $5.2bn at the end of last year, in addition to $75mn in pooled funding with other donors.
