Private sector credit growth recovers in October

Credit to the private sector continues to grow, although at a slower pace compared to the first half of the year

(This post has been updated to add details from December’s Monetary Policy Report.)

A gauge of the financial sector’s contribution to economic activity rose in October from a 17-month low the previous month as agriculture loans and mortgages increased further, according to figures from the Bank of Uganda.

The outstanding stock of commercial bank loans to the private sector rose 10.8% from a year ago to Shs14.6 trillion at the end of October, faster than the 8.8% growth recorded the previous month.

The indicator improved as a result of stronger year on year growth in lending to agriculture and the biggest jump in mortgages since February 2015.

Loans to the agriculture sector rose 22.9%, up from 17.5% in September, propelled by an increase in processing loans.

Mortgages, part of the building, mortgage, construction and real estate sector, increased by 16.1% to Shs1.3 trillion, driven by growth in commercial mortgages. Overall, commercial bank credit to the building, mortgage, construction and real estate sector rose 12.6% year on year in October, up from 12.3% the previous month.

Private sector credit extended by all depository institutions, excluding the central bank, rose by 11.7% year on year in October to Shs15.4 trillion, after a 10.6% growth — the slowest since November 2018 — in the previous month.

A chart showing year on year private sector credit growth in Uganda in October 2019

After rising to a 40-month high in May, growth in commercial bank lending to the private sector has tapered off in the second half of this year. This trend mirrors the general level of economic activity which has slowed down this year, according to the Bank of Uganda.

“Growth in private sector credit remains robust although it slackened slightly in the recent past,” the central bank said in December’s monetary policy report. “The year-on-year growth in PSC averaged 12.6% in the three months to October 2019, lower than the 14.3% recorded in the three months to July 2019, comprising mainly shilling denominated loans, which grew by 16.6% from 18.6%. Similarly, year on year growth in foreign currency denominated loans averaged 5% relative to 6.6% during the previous period.

“On a quarter-on-quarter basis, private sector credit grew at a lower rate of 2.3% in the three months to October 2019, compared to 4.2% in the three months to July 2019. The lower growth in private sector credit in the quarter to October 2019 may partly be reflective of the moderating economic activity and an increase in non-performing loans in September 2019 relative to June 2019.”