The COVID-19 pandemic has hit Uganda’s banks hard, forcing commercial banks to restructure loans to a tune of Shs2.02Trn, the Uganda Bankers’ Association (UBA) has said.
The Association made the revelation today while appearing with Bank of Uganda before Parliament’s National Economy Committee to discuss the impact of coronavirus on the financial sector.
According to the Association, as at the end of April, in the first month of restructuring, commercial banks received 758,758 restructuring applications and of these, 755,650 were accepted worth Shs2.028Trn.
Most of the restructured loans were from traders accounting for 24%, services 21.4%, agriculture 16.5%, real estate 16.03%, manufacturing 9.5% and salary loans 11.5%.
The value of loans approved in April 2020 was down by 83 percent compared to March 2020. Real estate prices and inevitable collateral valuations are likely to be depress in the COVID-19 aftermath, which may amplify banking institutions expected losses and worsen their solvency.
Bank of Uganda (BoU) Governor, Prof. Emmanuel Tumusiime-Mutebile told Parliament that COVID-19 has adversely affected borrowers’ ability to meet loan obligations, tightened and affected bank’s operations and poses a serious threat to financial system stability.
According to the Central Bank, asset quality deteriorated through the year ended March 2020, with Non Performing Loans rising from 3.8percent in June 2019 to 5.4 percent. Annually, the stock of NPL rose by 15.7% in March 2020.
“The economic downturn arising from COVID-19 is expected to increase NPLs further, but this effect will be moderated by the BOU credit relief measures. NPL ratios for agriculture, electricity, water and personal or household loans registered the largest increase,” Mutebile said.
William Nzoghu (Busongora North) questioned why the Central Bank reduces lending rates and doesn’t enforce the changes with commercial banks.
“Why do you bother to reduce the CBR which you don’t enforce to commercial banks which you supervise? How do you at this point in time intend to insulate the treasury from influence like printing money? Can’t you reconsider their decision of reducing the CBR further because in the real economy, the 7% doesn’t help? I do feel and propose that at this point in time, it would be fair and proper to bring this CBR to 3% so that the stimulus. What does it help to put it at 7% and people don’t come to borrow the money?” he questioned.
Government revenue including grants in the ten months of FY2019/20 amounted to Shs15.087Trn which was Shs3.128bn lower than the approved budget.
Grants amounted to Shs662.9bn which was Shs893.9bn lower than programmed, while domestic revenue amounted to Shs14.385Trn which was Shs2.234Trn lower than approved budget.
Due to the shortfall in revenue, government indebtedness to Bank of Uganda amounted to Shs2.77Trn as of 16th June 2020. However if government fails to repay by 30th June 2020, it will be a violation of the Public Finance Management Act.