Banks expect to ease lending standards in the quarter ending in September as loan performance improves for businesses and declines for households, and demand for credit from firms increases, according to a Bank of Uganda survey.
The BoU’s quarterly survey found that banks expect to maintain credit standards for businesses, with a bias towards easing, while tightening standards for households. Those who expect standards for businesses to remain unchanged cited low inflation, stable central bank and exchange rates, and sustained economic activity. Those anticipating easing of standards for businesses pointed to a strategic shift towards lending to small and medium-sized enterprises (SMEs), supportive government policies, increased liquidity in the banking sector, and competitive pressures.
In particular, 25.8 per cent of lenders said they expected to ease credit standards for SMEs, compared to 8.2 per cent who expected to tighten them. Meanwhile, 9.8 per cent said they would ease standards for large enterprises, compared to 3.1 per cent who expected to tighten them.
Demand for loans from businesses is also expected to increase, regardless of firm size or loan duration. This increase is expected to be driven by tax amendments that came into effect in the new financial year, banks’ strategic focus on expanding their retail and SME lending portfolios, and increased infrastructure spending fuelled by ongoing activity in the oil and gas sector.
Households are set to experience a decline in credit demand in the quarter to September, according to bank predictions, with loan defaults expected to increase. As a result, most banks expect to tighten credit standards for households, with a net tightening of 11.3 per cent reported in the BoU survey.
Lenders blamed the anticipated increase in the household default rate on the freeze of USAID funding, which they said had affected borrowers formerly employed by NGOs and US-funded organisations, and on the delayed payout of arrears to civil servants. The survey also found that banks had registered a net increase of 20.1 per cent in household defaults in the previous quarter (ending in June).
“Those that anticipated decrease in household credit demand attributed it to the emerging risks in consumer lending to USAID clients and the upcoming general elections in 2026,” the survey added.
The BoU survey also found that the majority of banks expected their lending rates to remain unchanged, citing the stable macroeconomic environment characterised by low inflation and a stable central bank rate. Additionally, most lenders anticipate that the BoU’s monetary policy stance will remain unchanged, with the CBR expected to remain at its current level.
