Banks seek to enhance financing to manufacturing

According to UBA, funding critical sectors of the economy was important to boost economic recovery. PHOTO | FILE

Uganda Bankers Association (UBA) has said the banking sector is seeking to enhance funding to key sectors of the economy, among which include manufacturing, tourism and hospitality and agribusiness. 

The focus of the above sectors, which will be key discussion points during the annual bankers’ conference, are part of the plan to narrow the financing gaps constraining growth. 

Speaking during a news briefing ahead of the two-day annual bankers’ conference expected between July 25 and July 26, Ms Sarap Arapta, the UBA chairperson said, funding critical sectors of the economy was important to boost economic recovery. 

Ms Arapta, who is also the Citibank managing director, also noted that the central bank had taken a prudent step to increase the Central Bank Rate, from 7.5 percent to 8.5 percent. 

This, she said, seeks to control inflationary pressures and volatility in the foreign exchange market, which in most cases tend to affect the banking sector as well as dampening investment activities. 

“When the inflation and volatility in the foreign exchange market (depreciation) is high, it affects banks and investors. That is why the central bank is right to increase the CBR until inflation stabilizes,” she said. 

In two consecutive months, the Central Bank has been increasing the CBR by a percentage point, first from 6.5 percent to 7.5 in June to 8.5 percent in July.   

However, Ms Arapta said that whereas a high CBR slows down growth in private sector credit, risk of loan defaults and leads to surge in interest rate, banks must scale down capital expenditure and pay a lot of attention to risk management. 

Mr Wilbrod Owor, the UBA executive director, said because manufacturing, tourism and agribusiness have multiplier effects on the economy, it was important that the banking sector focuses on the three sectors to achieve real economic recovery.

“The economy needs recovery from low growth. Manufacturing, tourism and agribusiness have multiplier effects informing job creation and employment, plus foreign exchange earnings. These sectors need financing and need to be supported by banks by providing necessary funds that they need to run their businesses,” he said. 

Share of credit 

According to Mr Owor, whereas manufacturing and tourism are among some of the biggest recipinets of credit, there is need to enhance them to achieve real growth. For instance, he said, loans to manufacturing grew to Shs2.4 trillion as of May while advances to tourism grew  to Shs435b. 

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