Private sector lending slows in February

Drop in loans to the telecoms sector behind the slower rise in bank lending while retail credit drove growth

Annual growth in bank lending to the private sector rose at its slowest pace in three months in February on a decline in loans to the transport and communication sector.

Bank lending to the private sector, a key driver of economic growth,  grew 10.7% year on year in February to Shs14.8 trillion, central bank data show, the slowest annual growth rate since December.

Chart showing private sector growth in Uganda from January 2010 to February 2020

Total outstanding loans extended by banks and other financial institutions increased to Shs15.7 trillion, a rise of 11.3% compared to a year ago. But this growth, driven by trade loans and credit to the building and real estate sector, was the slowest in three months.

The drop in commercial bank credit to the private sector was largely due to a fall in lending to transport and communication. Bank credit to the sector declined by 24.4% to Shs5.4 trillion, mainly as a result of a fall in telecommunications loans.

Bank lending growth was boosted by increases in loans to building and real estate and credit extended to the trade sector. Building and real estate loans grew at the fastest rate since February 2016, increasing by 15% year on year to Shs3.2 trillion, with lending to general construction contractors and mortgages driving the spike.

Meanwhile, a 40.4% rise in retail credit was responsible for nearly all the increase in bank loans to the trade sector, which grew by 13.8% in the year ending February to Shs2.8 trillion. Contributions from retail loans to private credit growth amounted to 23.7%, the largest of any sub-sector.

Bank loans denominated in the Uganda shilling posted growth of 17% year on year, coming in at Shs9.5 trillion, their fastest growth in 10 months. The biggest contributor to their increase was credit to the building and real estate sector, which amounted to Shs1.8 trillion.

Foreign currency loans extended by banks were 0.8% higher than in the same month last year, their slowest rate of growth since December 2018. The biggest falls at a sectoral level came from transport and communication credit, which was down by 28.5%, while loans to manufacturing dropped by 4.8%.

The weighted shilling lending rate for commercial banks fell to 19.1% compared to 21.1% a year ago and 19.9% in January. However, foreign currency lending rates were flat from a month ago at 6.7%, and slightly higher than the 6.5% rate for February 2019.

Monthly growth

Bank lending from the previous month dropped by Shs70.2bn, a drop of 0.5%, up from January’s 0.8% fall. The decline was mostly due to a 13.7% fall in loans to the electricity and water sector, particularly electricity, lighting, and power loans. Trade credit also declined by 1.1% month on month, reflecting less lending to imports, retail trade, and exports.

Shilling-denominated loans increased by Shs8.7bn month on month, reversing a decline of Shs4.1bn in January. Foreign currency loans fell 1.5% compared to the 2.2% reduction recorded in January.

Loans by all financial institutions were down 0.4% on the month, reducing by Shs59.1bn, compared to a decline of  0.8% in January. The negative growth reflected a 14.3% fall in lending to electricity, lighting, and power entities and a 7.9% drop in loans for imports. In addition, wholesale trade loans were down 1.6% over the month.