Growth in bank lending to the private sector was unchanged in March on an annual basis, but posted the fastest monthly rate in six months, Bank of Uganda figures show.
Commercial bank’s total outstanding loans at the end of the month increased by 11.3% from a year earlier to Shs13.6 trillion, the same rate recorded for February.
Policy makers see growth in bank lending to the private sector as a leading gauge of the financial sector’s contribution to economic activity. If it continues on its recovery path, Bank of Uganda said in April, “it is likely to boost private investment and consumption, which in turn should support growth going forward.”
In March, the rise in bank lending was driven by increases in credit to manufacturing, particularly to chemicals, pharmaceuticals, plastic and rubber products, and to trade, especially retail trade.
Loans to manufacturing rose 22.1% year on year to Shs1.8 trillion while loans to trade increased by 13.9% to Shs2.5 trillion.
Month on month, commercial bank lending increased by 1.6%, the fastest growth since September 2018, driven by manufacturing loans and credit to building, mortgage, construction and real estate.
Total other depository corporations lending, a broader measure of credit in the economy that includes loans by credit institutions and micro deposit taking institutions, rose 13.3% year on year in March to Shs14.5 trillion, the fastest rate since January 2016.
The growth in lending to the private sector has been “partly supported by a recovery in economic activity, improvement in asset quality evidenced by lower non-performing loans, the lagged impact of accommodative monetary policy and continued recovery in foreign currency lending,” the central bank said in its monetary policy report for April.
Bank of Uganda added that supply and demand for credit remained robust in the quarter that ended in February.
“Loan applications received by financial institutions in the period totalled Shs4.6 trillion while approvals summed up to Shs2.8 trillion. The disparity between value of loan applications and approvals continues to partly reflect supply-side constraints to growth in PSC.”