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Banks Shun Private Sector As They Reap Big From Lending Gov’t

A new report has revealed how government is literally killing Uganda’s private sector and the economy at large.

The Bank of Uganda (BoU) Supervision Report for 2017 released recently says that the significant increase in the banks’ investment in Government of Uganda and BOU securities, with a meager increase in lending to the private sector indicates that banks’ remained risk-averse, perhaps because of high loan default rates experienced in  2016.

“This was in spite of the default rates easing considerably during 2017, with industry NPL ratio closing at 5.6 percent from 10.6 percent as at end of 2016,”the report reads in part.

It adds that total assets of Uganda’s banking sector grew, in nominal terms, by 12.0 percent between December 2016 and December 2017, from USh.23.7 trillion to USh.26.5 trillion. This was a marked increase in bank assets, as compared to the 9.1 percent growth achieved over the previous year, 2016.

“This was mainly on account of a 204.1 percent increase in banks’ holdings of BOU securities, from USh.0.8 trillion in December 2016 to USh.2.5 trillion in December 2017. Loans and advances increased by 1.5 percent in 2017, which was much lower than the 6.1 percent growth registered in 2016,” the report says.

Overall, the growth in bank loans and advances was subdued despite the easing of monetary policy during the year, the report says.

Shilling denominated loans expanded by 8.3 percent in 2017 to USh6.9 trillion, which was higher than the 7.5 percent growth registered in the previous year.

However, foreign currency denominated loans fell by 7.1 percent in 2017, down from the 4.4 percent growth registered in 2016.

Foreign currency denominated loans constituted 40.7 percent of total loans as at end of December 2017, down from 44.4 percent as at end of December 2016.

“Banks continued to exercise caution in lending due the high default rates suffered in 2016, even though 2017 registered significant improvement in loan performance,” says the report.

Sectoral analysis of bank lending indicates that the real estate and construction; trade and commerce; and household sectors claimed the largest shares of bank lending as at December 2017.

Notable was the growth in the share of personal and household loans, supported in part by BOU’s accommodative monetary policy stance and the expectation of improvement in macroeconomic conditions (BOU Lending Survey reports, 2017).

In terms of annual sectoral credit growth, the agriculture sector registered the highest growth, of 28.1 percent in 2017. On the other hand, lending to the real estate and construction sector decreased by 11.0 percent over the same period.

Taddewo William Senyonyi
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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