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Banks Refuse To Write Off Loans, Ask Gov’t To Create Shs1 Trillion Fund For Struggling Private Schools

Wilbrod Owor, Executive Director UBA

Commercial banks under their umbrella body, Uganda Bankers Association (UBA) have warned Ugandans against asking financial institutions to write off loans incurred by private school owners, saying pressure should be put on Government to set up a medium term education sector recovery fund of USD300Million equivalent to Shs1.082Trn to cushion private schools that have been battered by the pandemic.

The remarks were made by Wilbrod Owor, Executive Director UBA while appearing before Parliament’s Education Committee that is scrutunising a motion tabled by some MPs seeking Parliament approval for  Government to rescue private institutions from financial loss they faced due to the prolonged closure of schools .

“The burden of Non-Performing Loans (NPLs) isn’t only on financial institutions, we can’t carry the entire cost of Non-Performing Loans because it is too much and unfair. It isn’t financial institutions that created COVID, let government also make its part and contribute… It isn’t fair for only one institution to carry the entire non-performing implication of loans,” Owor said.  

He also told Parliament that the loan portfolio for private schools is around Shs2Trn and of this, Shs557Bn was loaned to schools, Shs594Bn went to teachers of private schools while Shs600Bn was lent to owners of educational commercial buildings like hostels and all these loans have had an interest rate accrue to a tune of Shs126Bn.

The bankers are now proposing that if private schools are to open smoothly in January 2022, Government needs to set up an education sector recovery fund where schools that will require 8-15 years to repay back this money.

Owor said that if the proposal is adopted, it will complement other measures set up by commercial banks like waiving off early repayment fee clauses, waiving off any penalty in their loan clauses, no further accruing interest on unpaid interest among others for the next 12 months.

“The way this fund would work, it would spread the fund anywhere for 8-15years so that the repayment installments aren’t very small and they give them breathing space to recover. It would operate under Bank of Uganda meaning all the financial institutions will have access to it and by extension those borrowing customers but also the administrative framework to run it and manage the fund well under the Central Bank,” said Owor.

The bankers also described as careless and shortsighted, remarks by Minister of Finance, Matia Kasaija where he urged owners of private schools to sell off their assets and schools so as to clear loans by banks, saying their business isn’t in selling schools.

Owor said that selling these schools isn’t a solution, but rather, Kasaija should instead put his focus on recovery measures to enable those schools recover over a period and pay back the loans properly, adding that even if the schools are sold, the buyer will still get the loan running.

“We think that the statement was unfortunate, we didn’t like it because we aren’t in the business of selling schools, that isn’t the core business of banks, it is to facilitate credit so that institutions expand. Even selling schools, we don’t realize the actual exposure that we lent out because as you may know, the property values are down in the depressed economy and overtaken by the interest,” said Owor.

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