Value of bank loans drops to Shs490 billion
Banking. A customer in a banking hall in Kampala. The stock of private sector credit grew by 1.8 per cent from Shs15.940 trillion in March to Shs16.23 trillion in April. PHOTO | ERONIE KAMUKAMA
The Covid-19 lockdown which started in the later part of March up to mid-May, has slashed the value of loans approved by commercial banks to Shs490.80 billion in April from Shs1.529 trillion in March.
The Bank of Uganda (BoU) has lowered the economy’s base lending rate - Central Bank Rate - by one percentage point to 7 per cent, down from 8 per cent in April. This is aimed at supporting economic growth, price stability in form of low inflation, low lending rates and stable exchange rate.
Loan value declines
The decline in loan approval by the financial institutions in April reflected a slowdown in the economic activities in the country and elevated uncertainties in the economy ranging from the national, regional and global level as the Covid-19 continues ravaging people’s lives and economic activities.
“The value of loans approved in April 2020 fell by 67.9 per cent to Shs490.80 billion from Shs1.529 trillion in March,” the Ministry of Finance, said in the state of the economy report of May 2020.
Adding, “The stock of private sector credit grew by 1.8 per cent from Shs15.940 trillion in March to Shs16.23 trillion in April due to the credit relief measures issued by the Central Bank which exempted borrowers from honouring their loan obligations falling due.”
The Ministry of Finance says during the period, both the shilling and foreign currency-denominated lending rates edged downwards in April, recording values of 17.73 per cent and 6.20 per cent, respectively.
However, the Ministry of Finance is optimistic that Central Bank’s measures announced on April, will boost the credit market in Uganda.
These measures, which took effect on 1st April 2020 include: repayment holidays for a maximum of 12 months, loan tenor extensions, and any other forms of debt restructuring covered in existing regulations.
Shilling deprecitates
During the period under review, the Uganda shilling slightly depreciated against the Dollar by 0.15 per cent, trading at an average mid-rate of Shs3,791.5 per US dollar compared to Shs3,785.8 per US dollar in the previous month.
Covid-19 has affected both domestic and offshore investors. On the offshore investors’ side, it led to capital flights as foreign investors pulled out their investments in Emerging Market Economies and low developing countries back to safe haven by keeping their investments in US dollars.
This led to a decline in interest rates charged on government securities because there was a reduction in demand.
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