BoU Governor, Prof. Emmanuel Tumusiime-Mutebile
Credit to the private sector Private sector credit (PSC) growth declined to an average annual growth rate of 11.7 percent in FY 2019/20 from the 12.6 percent in FY 2018/19,” the Bank of Uganda Annual Report for 2019/20 has revealed.
“Most of the deceleration in credit growth was on account of shilling denominated lending which grew by 15.5 percent, lower than the 18.8 percent registered in FY 2018/19. Private sector credit growth has been adversely affected by the decline in economic growth and weak asset performance,” the report, signed off by BoU Governor, Prof. Emmanuel Tumusiime-Mutebile, reads in part.
It adds that the slow growth was aggravated by business closures due to the lockdown aimed at containing the spread of the COVID-19 pandemic. However, average annual growth in foreign currency denominated loans rose to 4.3 percent in FY 2019/20 from 2.4 percent during the previous period, the report says.
“The slowdown in credit growth was synchronized across major sectors of the economy with some sectors such as mining and quarrying, transport and communication and electricity and water registering negative credit growth in FY 2019/20,” the report says, adding: “In addition, the average annual credit growth to the manufacturing, trade and personal & household sectors declined to 8.5 percent, 11.6 percent and 9.0 percent respectively in FY 2019/20 from 15.7 percent, 13.1 percent and 11.6 percent in the previous year.”
However, the report says, some sectors such as agriculture and building, mortgage and construction, grew by 17.5 percent and 12.9 percent, respectively from 15.5 percent and 10.6 percent during the previous year. Figure 7 depicts the PSC growth by sector in FY 2019/20.
“Weak credit disbursement to major economic sectors poses challenges for private investment and consumption and may further constrain economic growth prospects,” the report says.
Regarding asset quality, the report reveals, the ratio of Non-Performing Loans (NPLs) to total gross loans increased to 6.0 percent in June 2020, from 3.8 percent in June 2019.
The increase in NPLs was particularly significant in the agriculture, electricity and water and the personal and household sectors.
“Notably, the NPL ratio in the agriculture sector remains the highest amongst the key economic sectors, which could in part be explained by the risky nature of agricultural lending,” it says.
It adds that the growth in the NPLs in June 2020 was slowed by BoU’s credit relief measures put in place to mitigate the adverse economic impact of COVID-19 on borrowers and the financial sector as a whole.
“BoU allowed financial institutions to restructure loans of individuals and firms that were negatively affected by the lockdown and travel restrictions due to the pandemic. This meant that loans that would otherwise become non-performing due to challenges of repayment were restructured and would remain performing for the duration of the restructure period,” the report says.