All supervised financial institutions, save for one, have granted some kind of credit relief to their clients as a measure to mitigate the impact of Covid-19 on the economy.
Bank of Uganda’s financial stability report for June has revealed that only one financial institution, which the report does not mention, has not granted any credit relief because it has not received any applications.
Daily Monitor had by press time not independently ascertained which financial institution it is.
Dr Fred Muhumuza, a Makerere University economics lecturer at the weekend, said this could be because clients saw no value in restructuring or the bank received some applications, reviewed them but declined.
On the other hand, other supervised financial institution had by July granted credit relief of loans worth Shs5.9 trillion.
“The total loans granted credit relief in April, May, June and July amounted to Shs5.9 trillion,” the report said.
“The stock of loans, which were under credit relief in all banking institutions as at end of July was Shs4.8 trillion, which is equivalent to 31.2 per cent of total loans,” the report added.
Bank of Uganda earlier this year directed commercial banks to restructure individual and corporate loans as the Covid-19 induced lockdown affected businesses and economies globally.
The report reveals that financial institutions have accommodated their clients demands and adhered to Bank of Uganda instructions. “The acceptance rate for applications for credit relief was very high at 98.3 per cent, with 893,018 applications approved out of 895,241 applications,” the report reads in part.
It is also reported that the trade, real estate, manufacturing, and transport sectors have benefited most from the restructuring.
Loans due for repayment
Loan restructuring kicked off in April where over Shs2 trillion worth of loans was restructured.
According to BoU, the initial credit relief granted in form of a loan repayment holiday in April-May 2020, which was estimated at Shs1.3 trillion, is starting to mature.
Commenting on the likelihood of businesses paying the loans, Dr Muhumuza said while some businesses, especially those in transport such as motorcycles and buses have resumed operations, many others are still under lockdown or semilockdown.
This presents a very high likelihood of the maturing loans turning into bad or non-performing. “Quite a number of businesses have not recovered, arcades have just started to reopen, schools are still closed, they also had loans, hotels, lodges, all those are still not functioning. If they restructured those, automatically they become NPL’s,” he said.
Non-performing loans (NPLs) currently stand at 5.8 per cent and are expected to increase if borrowers are still distressed and not able to routinely service their laons.
The central bank also went on to reveal that increase in NPLs over the quarter to June 2020, which has affected banks’ asset quality, is mainly attributed to deterioration from the real estate, trade and commerce, and household sectors.
Banks, however, noted that there has a been a challenge in restructuring loans occasioned by limited access to customers due to the pandemic containment measures and misconceptions by borrowers about the eligibility and terms of restructured loans.