Posted on August, 15, 2016 at 08:20 am
By MARTIN LUTHER OKETCH
The Central Bank has revealed that agricultural sector has the highest level of non-performing loans in Ugandan banks with 15.3 per cent. This was contained in statistics released by Bank of Uganda (BoU) in its August monetary policy report. The report shows agriculture is closely followed by building and construction with 10.2 per cent, trade and commerce 9.1 per cent, electricity and water 6.5 per cent, among others.
Biggest defaulters
Non-performing loans (NPLs) as a ratio of gross loans increased from 4.0 per cent in June 2015 to 7.4 per cent in June 2016 mainly on account of an increase in NPLs in agriculture, trade/commerce, water/electricity and building/construction sectors.
“The agriculture sector recorded the biggest increase in its total bad loans with its NPL ratio increasing from 6.2 per cent in June 2015 to 15.3 per cent in June 2016, majorly due to foreign currency denominated NPLs,” said the Central Bank.
The bank points out that further increase in NPLs could heighten the risk aversion of commercial banks and further constrain credit growth. The executive director supervision BoU, Ms Justine Bagyenda, said: “Credit facilities of commercial banks have been under watch and they have now been classified as non-performing loans.”
Poor corporate governance
She said the increase is NPLs is due to poor corporate governance in banks and high level of default by borrowers.
Computed statistics show the lending rates for Shilling denominated loans declined in June 2016 to 23.5 per cent from a weighted average rate of 24.5 per cent recorded in May 2016, in line with the eased monetary policy stance. Rates on foreign exchange denominated loans remained fairly stable, averaging 9.5 per cent in the quarter to June 2016.
Other developments in the credit market show that interbank rates remained relatively stable during June and July 2016. “The seven-day money market rates declined steadily in the two months to July 2016, in line with the monetary policy stance. The overnight weighted average interest rate, however, rose to 13.5 per cent in July 2016 from 11.3 per cent recorded in May 2016,” said BoU.
Private sector growth
Regarding private sector credit growth, the Central Bank explains that growth in private sector credit has been slowing down since October 2015, partly because of higher provisioning for bad loans as well as subdued economic activity.
“After accounting for valuation changes, credit growth in the first half of 2016 averaged 3.9 per cent compared to 9.6 per cent in the same period of 2015,” said BoU. BoU explains that relative stability was largely because of a pick up in inflows from both coffee export receipts and offshore players.
The executive director research BoU, Dr Adam Mugume, said volatility in the exchange rate in the last week of June 2016 was managed by the Central Bank’s sale of US dollars in the interbank foreign exchange market and suspension of purchases for reserve build-up on days of elevated volatility.
On a trade weighted basis, the Central Bank says the Shilling was relatively stable; depreciating by 0.1 per cent, month-on-month in July 2016, pointing to relatively synched movement of the Shilling with the currencies of Uganda’s trading partners against the dollar.