Private sector credit growth improved slightly in April, showing its best year-on-year rate in 24 months, figures published by the central bank show.
Commercial bank lending to the private sector increased by 7.8% year-on-year in April, just slightly higher than the previous month’s rate of 7.7%. It is the fastest growth rate in two years of historically low credit growth.
But the more positive news for the economy is that credit to the building, mortgage, construction and real estate sector grew for the third straight month on an annual basis at a healthy 8.2%; before February, it had been negative since January 2017
If that growth is sustained – the sector has accounted for the largest share of commercial bank loans since April 2012 – it “will boost economic growth given that the slowdown in this sector significantly contributed to the decline in overall GDP,” Bank of Uganda said in its monetary policy report for April.
Private sector credit growth is a leading indicator of the financial sector’s contribution to economic activity, according to the Bank, which has increasingly grown worried about its subdued expansion. Since April 2016, the central bank has pursued an expansionist monetary policy aimed at stimulating economic activity.
The bank’s policy rate has fallen to the lowest level recorded since its introduction in July 2011; it was set at 9% in February and maintained in April. Commercial bank lending rates have also fallen from 25.2% in February 2016 to 20.1% in March.
Still, growth in lending to the private sector has remained sluggish in the easing cycle. The bank blames supply-side issues, especially high levels of nonperforming loans and the need to improve credit quality by banks.
Personal loans and household loans – especially loans to purchase nondurable goods and services – were the biggest determinant in April’s credit growth, increasing by 13.4% on an annual basis. Loan growth to agriculture, while lower than in the previous ten months, also contributed significantly.
The increase in credit to the building, mortgage, construction and real estate sector was the result of loan growth to property developers, estate agents and letting agents, and residential mortgages.
On a monthly basis, private sector credit growth was 0.7% compared to March’s 1.6%. The value of outstanding total loans in April was Shs12.3 trillion up from Shs12.2 trillion in March.