Why big investors are defaulting on bank loans

Infrastructure. People conduct their daily business at Senana investment building on Buganda Road in Kampala. PHOTO BY MICHAEL KAKUMIRIZI

What you need to know:

  • Loan unpredictably. Investors who borrow loans from commercial banks have struggled to repay the money later. Isaac Mufumba looks at how inflation, among other factors, have negatively influenced borrowing with some companies losing property.

Last month Senana Investment placed caveats on three contested properties that are subject of dispute between the firm and Standard Chartered Bank over a Shs34 billion loan. It warned potential buyers of losses.
A few days after Senana’s move, the law firm KTA Advocates, gave public notice of an intended sale of Visare Uganda Ltd’s apartment block in Lugogo, Kampala.
The developments have been the tale of the property industry for years. Not a week elapses before an auctioneer or law firm advertises an intended sale. Some of them have been big.
The threat of foreclosures has been a constant threat since commercial banks’ appetite for lending to the real estate sector increased between 2007 and 2009, creating a bubble of growth.
Figures from Bank of Uganda (BoU), show that funding to the sector rose from Shs226.5b in 2007 to Shs586.6b the following year and by an additional 52.7b in 2009. It exceeded the Shs1 trillion mark in 2010 before the bubble burst in 2011 due to mostly external factors over which Uganda had no control.
One of the external factors was the global financial meltdown, which was triggered off by developments in the housing market in the United States. Many households borrowed much more than they could afford to pay because banks had suddenly made available to them mortgages at low interest rates, only for the interest to balloon a year or two later.

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