Commercial banks gave out UGX1.8 trillion in form of loans and advances in 2020 following the Covid-19 induced lockdown, a report indicates.
According to the 2020 Bank of Uganda (BOU) Annual Supervision report, gross loans and advances increased by 12.3 percent (UGX1.8 trillion) to UGX16.3 trillion, which was higher than 11.8 percent growth over the period ended December 2019.
“This growth partly reflected a pickup in lending in the quarter ending December 31, 2020, and a significant component of capitalisation of interest on restructured loans, which, as a share of new net lending increased from 4.5 percent in the year to December 2019 to 11.6 percent in the year to December 2020,” the report released on Wednesday, 02 June 2021 reads in part.
Shillings and foreign currency denominated loans increased by 19.9 percent and 12.3 percent compared to growth of 19.4 percent and 12.4 percent in 2019 respectively. The proportion of foreign currency denominated loans to total loans increased from 35.4 percent to 36.4 percent over the year, the report adds.
Bob Okodi, Amref Health Africa Uganda CFO, On Purpose-Driven Finance and Measuring Impact in Lives, Not MarginsLoan growth over the year 2020, was spread across a number of sectors. Community and social services, and transport sectors registered the largest nominal increase in loans, by UGX738.4 billion and UGX435.0 billion respectively. In percentage terms, loans to the community and social services sector registered the fastest growth of 140.5 percent.
Despite the pick-up in loan growth to some sectors, asset quality remains a major risk, due to weak economic activity that has increased loan losses to Self-Funding Instalments – SFIs. Aggregate write-off of bad loans rose by 46.9 percent from UGX165.2 billion in 2019 to UGX242.6 billion in 2020, with UGX56.9 billion in the quarter to December 2020.
Aggregate non-performing loans (NPLs) increased over the year ended December 2020 across all banking institutions. The NPL ratio for commercial banks, credit institutions and microfinance deposit-taking institutions rose from 4.9 percent, 3.6 percent and 3.6 percent in December 2019 to 5.3 percent, 8.1 percent and 6.3 percent in December 2020, respectively. It should be noted that the rise in NPLs would have been higher but was effectively moderated by the Credit Relief Measures introduced by BOU, which have ensured that the economic stress faced by borrowers has a muted negative impact on SFI’s asset quality.
