The second wave of the pandemic pose downside risks to credit growth Kampala, Uganda | JULIUS BUSINGE | Banks have recently received more loan applications and extended more credit to borrowers amidst the coronavirus pandemic.
This is good for jumpstarting the economy that has been hit by COVID-19 lockdowns.
Till the second lockdown last month, the country had recorded a slow surge in coronavirus cases among its peers in the East African region.
Latest figures from Bank of Uganda now shows a year-on-year growth in stock of loans advanced to consumers, commonly known as Private Sector Credit, averaging 9.5% in the quarter to April 2021 compared with 8.2% in the quarter to January 2021 and 6.7% in the quarter to August 2020.
“The growth in Private Sector Credit has been on a sustained gradual increase since August 2020 reflecting the lower cost of borrowing following the easing of monetary policy,” reads part of the Bank of Uganda’s state of the economy report for June this year.
The central bank had kept its benchmark policy rate unchanged at seven percent since December last year to stimulate the economy in the wake of the pandemic. It cut it in June by 50 basis points to 6.5%.
Personal loans and manufacturing sectors recorded the highest growth in demand for loans, recording a 10.2% and 12% growth, respectively, relative to 8.0% and 9.9% in the previous quarter.
Restructured loans under BoU’s COVID-19 credit relief measures, meanwhile, amounted to Shs6.6trillion of which Shs3.7trillion remain outstanding as at the end of March.
However, the likely impact of the new Covid-19 strain and/or a second wave of the pandemic pose downside risks to credit growth.
Notably in April 2021, the annual PSC growth fell to 7.0% from 9.7% in March 2021 partly driven by a reduction in credit supply due to increased risk aversion by lenders.
The central bank is in the view that the risk aversion is likely to prevail in the short-term, while in the medium to long-term, credit growth will be dependent on the pace of economic recovery.However, average annual credit growth to the agriculture and building, mortgage, construction & real estate grew lower by, 5.2% and 9.1%, respectively in the quarter ending April 2021, compared to, 8.0% and 9.9%.Lending to trade and business sectors continues to remain subdued due to the adverse effects of the pandemic, growing on average at 3.7% and -0.4% respectively, relative to -2.9% and 6.9%.Credit demand and supply […]