Bank lending growth falls to four-month low in March, but still strong

Business activity in the private sector fell to a three-year low in March on coronavirus disruptions, but this seems to have had little effect on bank lending.

Bank lending to businesses grew at a robust pace when measured by the indicators’ trend growth over the past two years, according to figures from the Bank of Uganda.

The total stock of outstanding commercial bank loans to businesses and households hit Shs15 trillion in March, increasing by 10.4% from the same month last year. This was the measure’s weakest growth in four months, and also the second straight monthly decline, which indicates that lending is slowly falling on a year on year basis.

However, the indicator strengthened on a monthly basis, rebounding from two straight falls in January and February. Commercial bank loan disbursements rose 1.4% month on month, from Shs14.8 trillion in February.

Chart showing trend growth of bank lending to Uganda's private sector

The annual credit growth in March mainly reflected an increase in loans for retail trade, non-durable goods and services, agriculture processing and marketing, and mortgages.

Credit to retail trade rose 33.3% year on year to Shs1.2 trillion while loans for non-durable goods and services — categorised under personal loans and household loans — were up 23.5% to Shs1.2 trillion. Credit for agriculture processing and marketing rose 17.5% over the past year to Shs1.2 trillion.

The largest contributions to the 12-month decline in bank lending were reductions in loans for building and construction materials, electricity, lighting and power, and restaurants and hotels.

Commercial bank loans denominated in the local currency increased to Shs9.6 trillion, rising 15.9% year on year. Foreign currency-denominated loans increased by 1.8%, a two-month high, to Shs5.3 trillion. The increase in shilling loans was mainly a result of a rise in credit for non-durable goods and services, while loans for import trade were the biggest contributors to the growth in foreign exchange lending.

On a monthly basis, growth in bank lending was driven by an increase in credit to the telecommunications sub-sector, up 81.9% to Shs456.8bn. In addition, commercial mortgages rose 6.2% while loans for food, beverages and tobacco manufacturing increased by 5.5%.

Credit extended by all financial institutions — commercial banks, credit institutions, and micro deposit-taking institutions — grew at the slowest pace in 22 months, rising 9.7% year on year to Shs15.9 trillion. But it also registered its strongest monthly growth in three months, increasing by 1.3%. 

The biggest contributions to the growth of other depository corporations lending to the private sector were retail loans, loans for non-durable goods and services, and agriculture processing and marketing credit.