The portfolio of commercial bank lending to the private sector, a measure of the financial sector’s contribution to economic activity, firmed up in January, according to central bank data.
Outstanding commercial bank loans grew 11.7% year on year to Shs14.9 trillion at the end of January, which is the fastest growth in six months.
The growth was driven by an increase in building, mortgage, construction, and real estate loans; credit to the trade sector; and personal loans and household loans.
Credit to building, mortgage, construction and real estate rose 14.4% year on year to Shs3.1 trillion. The biggest contributor to this increase was lending to general construction contractors, which was up 35.6% to Shs600.2bn. In addition, mortgages rose 12.2% to Shs1.3 trillion.
Loans to the trade sector increased by 15.9% in January to Shs2.8 trillion, largely due to a rise in retail lending, which was up 34.9% to Shs1.1 trillion. Personal loans and household loans rose 10.6% to Shs2.7 trillion, mainly because of an increase in loans for non-durable goods and services.
Focussing on subsectors, the biggest contributors to growth in commercial bank lending to the private sector were credit to retail trade, non-durable goods and services, general construction contractors, and agricultural processing and marketing.
Uganda shilling-denominated bank loans were up 15.6% year on year to Shs9.5 trillion, their highest growth in eight months. The main contributors to the increase were loans for non-durable goods and services, retail trade loans, and mortgages.
Bank loans denominated in foreign currencies rose 5.2% year on year to Shs5.3 trillion, down from 6.8% growth in December. Credit to the trade sector accounted for 72% of this growth, with retail trade loans accounting for 40.1%.
Monthly growth falls as interest rates rise
Meanwhile, monthly growth in commercial bank lending was negative, falling 0.8%, following a decline in foreign currency-denominated loans and against a backdrop of higher lending rates.
Foreign currency bank loans declined by 2.2% from the month before, reducing by Shs118.1bn. In December, foreign currency bank credit rose 4.2% on the month. Uganda shilling-denominated bank loans also declined by Shs4.1bn in January, the figures show.
The average commercial bank shilling lending interest rate rose to 19.9% in January, the highest in five months, up from 18.8% in December, according to central bank data. The average foreign currency lending interest rate also rose to 6.7% from 6.3% in December.
In its monetary policy report for February, the Bank of Uganda warned that a “significant increase in non-performing loans could curtail the growth momentum in private sector credit growth.”
The warning was in relation to an increase in non-performing loans in the last quarter of 2019. According to the report, the share of non-performing loans to total commercial bank loans rose to 4.7% in the quarter, up from 4.4% in the previous quarter and 3.4% in the last quarter of 2018.
“The increase in NPLs was mainly on account of the poor performance of loans to the agriculture, manufacturing and building, mortgage, construction and real estate sectors,” the report said.