Borrowers especially businessmen who had hopes of government helping them to repay their loans in light of the COVID-19 pandemic should think twice.
This is after President Yoweri Museveni categorically stated that “government won’t pay your loans” but will engage banks to adjust on their conditions.
He made the remarks on Tuesday afternoon while addressing the nation on the COVID-19 situation in the country.
Although Museveni said government will engage banks, the Bank of Uganda has already handled the loan issue.
BoU has granted exceptional permission to Financial Institutions including banks to restructure loans of corporate and individual customers including a moratorium on loan repayment, on a case by case basis at the discretion of the financial institutions for up to 12 months, effective April 2020.
Accordingly, banks have started writing to their clients on the same.
Ramathan Ggoobi, an analyst and Economics Lecturer at Makerere University Business School (MUBS) government should offer a tax break to traders and businessmen.
“What is needed for me is rent; Govt should facilitate a negotiation for a 3 month rent-free period by offering a tax break for 6 months,” Ggoobi said via his official Twitter handle.
It is worth noting that the impact of the coronavirus on the banking system has an indirect effect through Non-Performing Loans (NPLs).
The sectors that are likely to be most affected by COVID-19 include trade, tourism, transportation and construction.
Private sector credit extension to these sectors constitutes 45 percent of the total private sector credit.
Recently Finance Minister, Matia Kasaija said: “If NPLs in these sectors increase by 50 percent due to fallout from the COVID-19 outbreak, the ratio of non-performing loans to total loans would worsen from 4.7 percent to 5.9 percent which has negative impact on private sector credit growth as well as economic growth.”