Bank lending to businesses rebounded to a four-month high in December, according to central bank data.
Commercial bank loans to the private sector rose 11.3% on a yearly basis in December to Shs15 trillion, up from 10.1% the previous month, the Bank of Uganda’s monthly report on credit to the private sector showed. Lending growth by banks declined year on year in November to the second-lowest rate recorded in 2019.
The rebound was largely driven by an increase in lending to the building, mortgage, construction and real estate; trade; and agriculture sectors.
Credit to the building, mortgage, construction and real estate sector rose 13.3% year on year to Shs3.1 trillion on the back of loans to general construction contractors and mortgages. Contribution from the sector to private sector credit growth amounted to 24%.
Lending to the trade sector increased by 12.9% year on year to Shs2.8 trillion, mainly due to growth in retail lending. Agriculture loans, on the other hand, rose 17.7% to Shs1.9 trillion at the end of December, with credit to processing and marketing driving the growth.
Growth in credit to the private sector moderated in the second half of 2019 compared to the first half, the central bank data show. According to the Bank’s monetary policy report for December, the slowdown is partly due to moderating economic activity and an increase in non-performing loans in the quarter to September compared to the quarter to June 2019.
“The share of non-performing loans in total loans extended by commercial banks rose to 4.4% as at September 2019 compared to 3.8% as at June 2019,” the report said. “The deterioration in asset quality was mainly due to the poor performance of loans to the building and construction; trade; and services sectors, coupled with high non-performing loans in the agriculture sector.”
The report added: “Going forward, non-performing loans could increase further due to exposure to the oil sector and as a result, could curtail the private sector credit growth momentum.”
Lending to the private sector by all depository institutions, excluding the Bank of Uganda, increased to Shs15.9 trillion at the end of December from Shs14.2 trillion a year ago, which translates to growth of 12% — the fastest since August.