Credit uptake remains weak amid rising risk

Agriculture and manufacturing are the only sectors with a slight growth in private sector credit.  Photo | file 

What you need to know:

At least more than half of commercial banks say they will increase interest rates by September which is expected to further impact private sector lending 

Loan uptake by the private sector slightly contracted in the period ended June, according to Bank of Uganda. 

In the quarter between March to June, the Central Bank indicates, total private sector net of revaluation and capitalised interest, declined to 9.2 percent in June down from 9.6 percent in the quarter to March. 

The reduction, although slight, highlights a difficult economic environment that has continued to impact growth in private sector credit weak and the economy at large. 

This also comes amid an increase in interest rates as Bank of Uganda continues to increase the Central Bank Rate in at attempt to contain rising inflationary pressures. 

Last week Bank of Uganda increased the Central Bank Rate for the third consecutive month to 9 percent. 

This has resulted into an increase in commercial banks interest rates with most banks indicating they will follow movements of the Central Bank Rate. 

In its monetary policy statement released last week, Bank of Uganda indicated that a June survey among commercial banks had shown that at least 60.9 percent of banks had indicated they expect their lending rates to increase in the quarter to September 2022, citing the increase in the Central Bank Rate and high cost of funding.

However, the Central Bank also indicated that private sector credit has continued to be constrained by risk aversion exhibited through reduced loan approvals. 

Bank of Uganda data indicates that despite a steady increase in loan applications, lenders have been reluctant to approve more than 56 percent of the value of loans applied for. 

Data indicates that personal and household loans, agriculture, trade, building mortgage, construction and real estate, among others received the high amount of disbursed loans during the period.  

For instance, during the period, loans to building, mortgage, construction and real estate stood at Shs4.1 trillion compared to Shs3.8 trillion recorded in January while agriculture received Shs2.2 trillion from Shs2.07 trillion in January. 

Manufacturing received Shs2.1 trillion while transport and communications received Shs1 trillion. 

Credit to trade increased from Shs2.9 trillion in January to Shs3.1 in June while electricity and water received Shs299.3b from Shs289.1b in January.    

Loans to community social and other services grew from Shs1.1 trillion in January to Shs1.16 trillion in June while mining and quarrying received Shs54.8b June 2022. 

During the period, personal and household loans, grew to Shs3.6 trillion in June from Shs3.5 trillion in January credit advanced to trade stood Shs3.132 trillion in June from Shs2.9 trillion in January. 

Business service received Shs821.8b from Shs722.8b in January while other services attracted Shs52.1b from Shs87.1b in January.

Share of loan disbursement in June 

Sector

Amount

Manufacturing

Shs2.5 trillion  

Agriculture  

Shs2.1 trillion

Mining   

Shs54.8b 

Trade    

Shs3.1 trillion

Transport

Shs1 trillion

Electricity   

Shs299.3b

Building

Shs4.1 trillion  

Personal loans  

Shs3.6 trillion

Business services 

Shs821.8b

Other services

Shs52.1b

Total

Shs19.1 trillion

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