Bank Lending Survey Report for the Fourth Quarter – FY 2017/18 released by the Bank of Uganda recently indicates that banks are expecting businesses to borrow more and at the same time default more on Dollar Loans.
Findings from the survey for the period April – June 2018, as well as expectations for July – September 2018, show that most banks anticipate an increase in the demand for credit to businesses in the quarter to September 2018, largely influenced by more business opportunities and expected investments in the oil and gas sector.
They also expect the default rate on loans to businesses to increase mainly because of the likely impact of the depreciation of the Uganda shilling against the dollar, particularly from businesses that borrowed in foreign currency.
Following the reduction in Central Bank Rate for June 2018, the cost of funds to banks is expected to reduce, which will lead to reduction in pricing of loans. The survey shows that a few banks expect their lending rates to decrease.
“The survey results indicate that (12.6 percent) of the banks expect their lending rates to decrease, while 85.7percent expect the rates to remain unchanged over the next quarter to September 2018.
The average percentage decrease in lending rate over the quarter to September 2018 is estimated at 0.13 percentage points.
The anticipated decline in lending rates was mainly attributed to competition in response to the reduction in the CBR,” says the report.
Bank of Uganda surveys deposit-taking financial institutions which it supervises (the 24 commercial banks and 9 non-bank institutions) on a quarterly basis to better understand how they are lending and what the credit market in Uganda looks like.