Bank loans defy Covid-19 impact to post growth

Credit growth started picking up in Uganda in the quarter to December 2020, signalling potential recovery. PHOTO/COURTESY.

What you need to know:

  • At least 44.6 per cent of the gross loans in the banking sector have benefitted from credit relief measures since April 2020.
  • 12.5% Growth: The percentage at which loan advances grew in the period ended December 2020. 

Despite disruptions occasioned by Covid-19 commercial bank credit posted double digit growth for the year ended 2020. 

The growth is highlighted in a Bank of Uganda Quarterly Financial Stability Review, which notes that commercial bank loans grossed at Shs16.3 trillion, which represented a 12.5 per cent growth compared to 11.5 per cent in the same period in 2019. 

“Credit growth started picking up in the quarter to December 2020, signaling potential recovery,” the report noted that the largest growth was more notable in the quarter to December which expanded by at least 3.7 per cent up from 1.2 per cent in the quarter to September.  

During the period, loan extensions picked up to Shs315b from Shs186b in the quarter to September due to a gradual economic recovery and lower cost of borrowing. 

This, the report indicates, was noted due to growth in personal and household loans to 7.8 per cent. 
Agriculture loans expanded to 5.1 per cent while manufacturing grew by 10.7 per cent. 

However, lending to trade contracted by 1.6 per cent while loans to service sectors, including education and hospitality, remained subdued due to Covid-19. 

During the period, however, the Central Bank noted an increase in deterioration in loan quality, which presents serious risk on the stability of the financial sector. 

The report noted an increase in write offs resulting from bad loans, which rose by 46.9 per cent to Shs242.6b. 
The ratio of non-performing loans rose from 4.9 per cent to 6.3 per cent, slowed by credit relief measures, which have created a buffer for distressed financial institutions. 

The Central Bank in April instituted a number of measures in supervised financial institutions where instructed to relax loan terms to customers that were facing distress. 

Between April and December 2020, borrowers applied for a cumulative total credit relief of Shs7.9 trillion, of which Shs7.7 trillion was granted by banking institutions, translating to an acceptance rate of 97.6 per cent. 

At least 44.6 per cent of the gross loans in the banking sector, according to Bank of Uganda, have benefitted from credit relief measures since April 2020.

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