Data from Bank of Uganda shows that loan applications and approvals fell in the last quarter ended August 2021
The Central Bank says that the fall was a result of the slow pace in economic recovery with banks remaining cautious of how much and who they lend to.
According to the Central Bank, loan applications in the last quarter fell to Shs3.86 trillion from Shs5.41 trillion in the quarter ended May. This, Bank of Uganda said, could have been a result of a reduction in demand for loans, worsened by a fall in the value and quality of assets.
In the last 2 years affected by Covid-19, we have witnessed many jobs lost, businesses close and others seized by banks due to failure to meet operational costs and service bank loans.
Data also indicates that loan approvals fell to Shs2.26 trillion during the period compared to Shs2.36 trillion in the quarter ended May, driven by a cautious approach adopted by banks due to fear of Covid-19 related risks.
However, in highlights published in the Monetary Policy Report, the Central Bank said the economy had started to show sufficient recovery boosted by an increase in the uptake of vaccination, which might lead to the reopening of some critical sectors of the economy.
A number of economic sectors have remained closed for close to two years now, threatening to morph into a crisis that might have wider economic ramifications.
For instance, the education sector, which holds close to Shs2 trillion in bank loans, has remained closed, crippling its capacity to repay credit facilities that were already under obligation.
Last week, an umbrella organization that brings together private school owners, noted there was an urgent need for an intervention to save distrusted private schools that continue to choke on loans and fail to meet basic operational services.
It was also noted that private schools will need a stimulus package of about Shs500 billion to put operations of various schools back in motion.
During the period to August, the Central Bank noted, personal and household, agriculture, manufacturing, trade and building-mortgage-construction, and real estate sectors, were the most active in terms of loan applications.
The Central Bank also noted that during the quarter ended August, Private Sector Credit grew by 9.44 percent compared to 7.37 percent in the quarter ended May.
The growth, Bank of Uganda said, had been subdued during June and July but recovered in August due to the easing of lockdown measures in July.
Bank of Uganda also noted that during the period, interest rates had declined to an industry average of 17.2 percent from 18.8 percent in the quarter to May in line with the accommodative monetary policy stance.
However, some sectors such as trade and household and personal loans experienced some volatilities with lending rates rising to an average of 18.3 percent from 16.3 percent.
Interbank interest rates remained well-anchored around the Central Bank Rate (CBR) with the seven-day rate remaining relatively stable at 6.77 percent.