What you need to know:
Problem. Borrowers still faced with high lending rates
Improvement in commercial bank asset quality has led to decline in the levels of non–performing loans in banks to 5.3 per cent down from 5.8 per cent in June 2014.
Bank of Uganda explains that the current situation in Uganda’s credit market indicates the problem of bad loans that banks faced some two years ago is diminishing and that private sector credit has also picked up progressively over the last one year.
“There are no bad loans in Ugandan banks at the moment. Asset quality of the commercial banks has continued to improve,” said the executive director of supervision Bank of Uganda, Ms Justine Bagyenda.
Ms Bagyenda said the quality commercial bank assets have continued to improve over time with banks’ lending normally to the private sector.
The executive director of research Bank of Uganda, Dr Adam Mugume said in October 14 Private Sector Credit (PSC) grew by 12.2 per cent year-on-year basis compared to 9 per cent and 13.0 per cent in October 2013 and July 2014, respectively.
In the quarter ended October 2014, PSC rose by 3.2 per cent compared to growth of 4.3 per cent over the three months to July.
Giving a detailed outlook on private sector credit growth for the financial year 2014/15, Dr Mugume said it is projected to grow by 15.4 per cent.
“Private Sector Credit growth is expected to recover further as private sector activity picks up and normal growth resumes,” he said.
Private Sector Credit or Domestic credit to private sector refers to financial resources provided to the private sector by financial corporations such as through loans, purchases of non-equity securities, and trade credits and other accounts receivable, that establish a claim for repayment.
Though there is a drop in non-performing loan levels, borrowers are still faced with the brunt of high lending rates despite reduction in the Central Bank rate, which have led to subsequent pick up in loan uptake by the private sector.
Dr Mugume said lending rates had remained mainly unchanged, averaging about 21.5 per cent over the last 7 months.
“An increase in the risk-free rate (rates on Government Securities) may cause lending interest rates to rise,” he said.