Banks Might Offer Fewer Loans – Bank of Uganda

Banks are likely to limit the amount of loans they give out as they focus more on scrutinizing borrowers to limit the effects of bad loans, the central bank has said.

This, Emmanuel Tumusiime-Mutebile, the governor of Bank of Uganda, said is likely to further hinder the growth of credit to the private sector in the coming months.

Presenting the monetary policy report for April, Mutebile said: “the private sector credit had picked up slightly last month but the growth remains slow… Faster recovery in credit growth may be impeded as banks focus on improving credit quality.”

Credit grew by 6.8 per cent, which was far below the BOU’s projection of 15 per cent. Banks make most of their money by issuing loans.

Dr Adam Mugume, the executive director for research at BOU, said that slow economic activity had contributed to more bad loans.

Mugume said commercial banks would be more conscious about their customers.

“The level of non-performing loans has increased from 4.9 per cent in September last year to 6.9 per cent in December 2013. Therefore, to the commercial banks, quality-wise in terms of the loans they give out, there is a problem,” Mugume said.

Loan extensions in shillings fell to Shs 29.9bn in February compared to Shs 60.2bn in January 2014. Core inflation, which measures the changes in prices of goods and services minus utilities, edged down further to 3.7 per cent in March, down from 3.9 per cent in February.

BOU forecasts that inflation would increase gradually in the next 12 months. However, this will not affect the overall growth projected at just 6 to 6.5 per cent this fiscal year. The central bank rate stayed at 11.5 per cent for the fifth month in a row.

“Maintaining the cautious monetary policy stance is critical to the resilience of the economy against current uncertainties and support growth,” noted BOU’s April monetary policy report.

Donor cuts, worth more than $118m, in reaction to Uganda’s new stringent anti-gay law, have hurt Uganda’s revenue base. The shilling has started to gain ground as the sentiment about aid cuts begins to fade away.

Source : The Observer

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