Annual domestic credit to the private sector from all financial institutions inched down in July, growing 5.6% compared to 5.7% a month earlier, according to data from the Bank of Uganda. That was the lowest year-on-year growth since January when it was 4.5%.
On the other hand, an increase in loans to the agriculture and trade sectors, as well as personal loans and household loans, was responsible for the growth in bank credit to the private sector in July.
Commercial bank lending to the private sector rose 5.9% year-on-year, the same rate as in June. In total, banks lent Shs11,622bn to the private sector in July, while the aggregate figure for all financial institutions was Shs12,117bn.
Banks expect to ease overall lending standards for both loans to enterprises and households in the quarter ending September, according to Bank of Uganda in its latest Bank Lending Survey Report covering the fourth quarter of the 2016-17 financial year. The survey found that credit standards on loans to enterprises were tightened at a slower pace compared to the third quarter, while credit standards on loans to households were eased.
The growth in deposits as well a reduction in the central bank’s policy rate were cited by banks as influencing their expectations for this quarter. The bankers said the two factors will lower the pricing of loans and also improve their demand and uptake.
Even then, a slight majority of respondents – 49.8% – said they don’t expect a change in their prime lending rates in reaction to a fall in the central bank rate. A significant number, 49.5%, believe their lending rates will decrease.
The weighted average lending rate for banks decreased to 20.88% in July, down from 21.11% in June. This indicates that commercial banks are lowering their lending rates in reaction to the Bank’s easing that started last April. It is the second lowest weighted average lending rate in 28 months after it dipped to 20.52% this April.
The building, mortgage, construction and real estate sector received most of the bank lending in July, with a 20.8% share. Trade had a 19.3% share, while personal loans and household loans were 17.9% of total loans extended. Manufacturing’s share was 13.5%, and agriculture 11.1%.
On a year-on-year basis, loans to the agriculture sector recorded the highest growth of 20%, followed by personal loans and household loans which rose 17.8%, while loans to the trade sector increased by 14.2%. Credit to the building, mortgage, construction and real estate sector however declined by 5.1%.
On a month-on-month basis, bank’s lending to the private sector increased by 0.4% month-on-month, up from Shs11,576.7bn in June.