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Banks Extend Loans Worth Shs5Trn To Customers In Three Months

Regulated financial institutions approved loans to the private sector to a tune of 5.1Trn in three months to December 2013, the Bank of Uganda has revealed.

In its quarterly State of Economy report for December 2023, the Central Bank says that the approval rate for credit in value terms decreased in the three months to October 2023 to 58.6% from 64.1% in the three months to July 2023, although the volume of loans recorded a growth within the same period under review.

“However, the value of loan requests rose to Shs8.7 trillion from 6.0 trillion Shillings while the value of loans approved rose to Shs5.1 trillion from Shs3.9 trillion over the same period. The increase in demand was attributed to the building up of inventory to meet the anticipated festive season demand, coupled with the demand from education institutions to meet their working capital and operational needs,” read in part the report.

This comes at the time Parliament recently okayed a proposal by Ministry of Finance to borrow Shs3.1Trn from local commercial banks to fund the Shs3.5Trn supplementary budget that was approved by MPs, with the biggest chunk of this loan going towards paying the Shs2Trn that Government borrowed from Bank of Uganda to finance Government activities at the height of the Covid-19 pandemic.

Bank of Uganda also revealed that the pronouncement by World Bank to halt funding projects in Uganda following the passing of the Anti-Homosexuality Act, saw the Uganda Shilling depreciate in value against the dollar up to date.

According to the report, the shilling depreciated by 8% to 3,825.33 per US dollar in September 2022 from Shs.3,541.46 in April 2022. BOU had to increase the cash reserve requirement (CRR) by 2 percentage points to 10% in June 2022 to drain excess liquidity and support the shilling. Inflation has since fallen sharply, and portfolio outflows reduced significantly.

“The exchange rate has been broadly stable, except in recent months, when it depreciated, driven by sentiments around the World Bank’ ‘ pronouncement on the suspension of new financing, Airtel IPO, and strong demand for foreign exchange for imports. With the inflation outlook being favourable, BOU lowered the CBR by 0.5 percentage points to 9.5% in August 2023,” as noted in the Central Bank report.

Bank of Uganda also decried the increasing public debt, saying that this is exerting pressure on revenue collections with the report stating, “Interest payments and external debt principal repayments exert elevated pressure on tax revenues to the extent that for every 100 shillings collected in tax revenues, 32 goes to debt service, diminishing resources available for service delivery.”

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