Majority of the banks expect their lending rates to remain broadly unchanged with a bias towards decrease, reflecting a relatively lower Central Bank Rate (CBR), the Bank Lending Survey(BLS) has revealed.
According to Bank of Uganda (BoU’s Monetary Policy Report ) for February 2021, commercial banks’ lending rate on Shilling loans averaged 18.8% in quarter to December 2020 down from 20.2% in quarter to September 2020 partly reflecting the lag in the monetary policy transmission mechanism.
“Lending rates on forex loans rose to an average of 6.1% from 5.7,% in the same period,” the report says.
It adds that Private Sector Credit (PSC) by Financial Corporations (Banks and UDB) grew by 10.2% in December 2020 up from 9.5% in the previous quarter supported partly by gradual economic recovery and lower cost of borrowing.
“Net extensions by banks picked up in the quarter to December 2020 although they are still below pre-COVID levels. There was an increase in both the value of loan demand and supply within the quarter to December 2020,” the report says.
It adds that the value of loan applications and approvals increased to Shs4.9 trillion and Shs2.9 billion in the quarter to December 2020 from Shs4.2 trillion and Shs2.7 billion in the Quarter to September 2020 respectively.
However, the continued build-up in net capitalized interest signals a default risk in the event that borrowers of restructured loans are unable to pay at the end of the moratorium.
“As at December 2020, total restructured loans amounted to Shs7.9 trillion of which, Ush4.8 trillion remain outstanding,” the report says.
It adds: “If economic activity does not pick up, there is a significant risk that past due restructured loans will progress to NPL (Non Performing Loans).”
Total NPLs as a share of Total Loans as at December 2020 stands at 5.3%.