By Samuel Njihia, The EastAfrican
In Summary
- Bank of Uganda in its financial stability report for the period ended June 2013 said that it was monitoring the growth of foreign currency-denominated loans to reduce risks associated them
- The regulator said that total non-performing loans as a ratio of total lending fell to 3.9 per cent in June 2013 from a peak of 4.7 per cent in March 2013
- The volume of foreign currency loans rose by 2.8 per cent to Ush3.13 trillion ($1.23 billion) as at the end of September from Ush3.04 trillion ($1.17 billion) as at the end of June 2013
Commercial banks in Uganda are now reporting
non-performing loans (NPLs) broken down by currency, complying with the
regulator’s move to cushion the lenders against currency fluctuations.
Bank of Uganda (BoU) in its financial stability
report for the period ended June 2013 said that it was monitoring the
growth of foreign currency-denominated loans to reduce risks associated
them.
“The BOU has strengthened its monitoring and
surveillance of factors which might pose potential risks to the banking
system. All commercial banks have begun providing data on their NPLs
broken down by the currency denomination of the loan,” Prof Emmanuel
Tumusiime-Mutebile, governor BoU in the report that was released last
week.
At the beginning of this year, the regulator said
that it would enforce short-term borrowing limits on foreign currency
loans by commercial banks and increase capital ratios as it was
concerned about the rise in dollar denominated loans in 2012 to
businesses and commercial banks.
BoU said that total non-performing loans as a
ratio of total lending fell to 3.9 per cent in June 2013 from a peak of
4.7 per cent in March 2013.
“The improvement in asset quality has been
particularly pronounced in the building and construction sector whose
NPLs ratio reduced by 1.5 per cent in the year to June 2013,” said the
regulator.
The building and construction sector has been one
of the largest recipients of foreign currency loans which have been
fuelling its growth at a rate that brought concerns to the regulator
last year.
BoU said that a survey was this year conducted to
obtain information on foreign currency denominated bad loans by sector
between 2006 and 2013 and that the results show that credit risk from
foreign currency loans remains low.
“The ratio of foreign currency NPLs to foreign
currency loans was only 0.8 per cent at June 2013. The trade and
commerce and mining and quarrying sectors contributed the highest
percentage to the foreign currency NPLs,” said BoU.
The regulator however said that risks remain and a
real depreciation of the exchange rate may increase the debt burden of
borrowers in foreign currency and increase bad loans.
The volume of foreign currency loans rose by 2.8
per cent to Ush3.13 trillion ($1.23 billion) as at the end of September
from Ush3.04 trillion ($1.17 billion) as at the end of June 2013
according to BoU’s data.
In June, the volume of foreign currency loans had
dropped by 3.9 per cent from Ush3.17 trillion ($1.18 billion) as at
December 2012, after jumping by 56.3 per cent from Ush20.3 trillion
($821.8 million) as at December 2011.
The drop between June this year and December last
year has been attributed to the new measures introduced to curb the
growth of dollar denominated loans.
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