Majority of the banks (95.8 percent) reported that they had restructured some of their credit facilities during the first quarter of 2020/21, Bank Lending Survey Report for First Quarter – FY 2020/21 has revealed.
“On average, banks indicated to have restructured 29.2 percent of their loan portfolio in the quarter to September 2020,” the recently released report says.
This is after banks were asked to indicate whether they restructured their credit facilities following Bank of Uganda’s action of waiving limitations on restructuring of credit facilities.
The report explains that the main reasons cited for restructuring of credit facilities included: business disruptions caused by measures to contain the spread of Covid-19 resulted into loss of jobs and other sources of income which affected the cash flows required for debt repayments; request to restructure in line with BOU guidelines from clients in financial distress from sectors that are still closed (e.g. education, leisure, etc.) and operation below full capacity in the sectors that are opened.
On the other hand, 4 percent of the banks indicated that none of their clients requested for a loan restructure, the report says.
The bank lending survey results further indicate that in the first quarter of FY2020/21, banks tightened their credit standards to both enterprises, and for households.
According to the report, the demand for loans by enterprises and households is expected to increase in the quarter to December 2020 than was anticipated in the previous survey results, due to higher demand for loans from SME and households.
In the next three months to December 2020, banks also expect the credit default rate on loans to both enterprises and households to increase on a net basis.
The expected increase in default rate on loans to enterprises and households is mainly attributed to the adverse effects of Covid-19 pandemic on business activities (some sectors remain closed), employment and incomes. The survey results indicate that majority of the banks expect their lending rates to remain unchanged with a bias towards decrease on a net basis, attributed largely to the reduction in the Central Bank Rate (CBR) that has resulted into low cost of funding and competition for prime borrowers among financial institutions.
