Restructuring loans: Banks open to talks due to Covid-19

Willingness: Banks, under Uganda Bankers Association have already shown willingness to reschedule loans fallowing further guidance from the Central Bank. PHOTO BY EDGAR R BATTE.  

In Summary

• Further engagement. Commercial banks, under Uganda Bankers Association, says they have already engaged with Finance Ministry and Bank of Uganda on the issue of loans but will wait for further engagement to have a way forward.

By Dorothy Nakaweesi

Commercial banks, under Uganda Bankers Association, have said they are open to discussion in regards to a suggestion to restructure loan payments at a time when effects of Covid-19 are starting to manifest.

Speaking in an interview yesterday, Mr Wilbrod Owor, the Uganda Bankers’ Association (UBA) executive director, told Daily Monitor they had already had engagements with the Ministry of Finance and Bank of Uganda about the same matter, noting they will await guidance from the central bank on the way forward.

“We are open to discussion. We will wait for guidance from the regulator [Bank of Uganda] and any engagement with the President or Minister of Finance. But we have already engaged the Minister of Finance on this and BoU. Let us wait and see,” he said, noting as the first point of contact, they would wait for central bank to guide on any discussion.

While addressing Ugandans on Monday, President Museveni, without giving details, said government would engage banks to restructure loan payments, especially at a time when many Ugandans are not working.

“You cannot take people’s property when they are not working. We are going to engage banks on the issue of loans,” he said, noting that government would also engage other companies such as Umeme and National Water and Sewerage Corporation to see how bills can be differed until the situation normalises.

The Covid-19 pandemic has created a lot of uncertainties with the public calling on commercial banks to restructure loan payments at a time when many companies have suspended work and set most staff home.

A number of companies struggled out of the 2007/08 financial crisis with some feeling the pinch a year later.

Recently, a number of companies had asked government for bail outs, much of which, according to experts, had been intended to service distressed loans.

Yesterday, Mr Everest Kayondo, the Kampala City Traders Association chairman, said the restructuring should put a hold on interest earned by the bank because it does not make business logic for the bank to earn when a business is not working.

“People borrowed to work but they are not working. Loans should be rescheduled until when business gets back to normal,” he said.

He also noted that government should direct landlords to give businesses a grace period for rent payments until a time when business has normalised.
“If loans are restructured, then landlords should also defer rent payments. Many of our people have not been working for weeks now and we don’t know when things will normalise. It would only be fair that landlords, especially those who own commercial building, suspend rent payments until such a time,” he said.

In his speech, President Museveni ordered all non-essential businesses, among them salons, garages and malls to close at least for 14 days.

Non-performing loans

Dr Fred Muhumuza, a lecturer at Makerere University and an economist, said yesterday there had been some discussions going on between banks and the Central Bank but it was important that the President emphasises it.

“Banks will need to talk with their clients because if they dont and people are not paying, those would be classified as non-performing loans, which ties a lot of the banks’ capital. Banks need to identify customers who are likely to be distressed in this period for a way forward,” he said.

Stanbic bank to defer dividends payment

Stanbic Bank has said it will hold payment of dividends for the year ended December 31, 2019 until further notice following a directive from the Central Bank.

Early last week, while releasing the bank’s financial results in Kampala, Stanbic indicated the board had authorised a dividend payout of Shs97.5b for the period under review from Shs90b that was paid out in 2018.

However, in a March 24 circular, Bank of Uganda directed commercial banks to defer bonus and dividend payments on account of reserving enough capital for the growth of real economy.

“Capital reservation to support the real economy and absorbed losses should take priority over discretionary distributions like dividend [and] bonus payments. Therefore, all payments of discretionary distributions is deferred until further notice or until explicit authorisation is given by Bank of Uganda,” a circular signed by Dr Tumubweine Twinemanzi, the Bank of Uganda director supervision said.

Defer payment
Speaking in an interview, Mr Sam Fredrick Mwogeza, the Stanbic Bank chief financial officer, told Daily Monitor that whereas the Central Bank had already reviewed the bank’s results and approved dividends payments, the bank would defer payment of the same until further notice.

“Given the new directive issued we will engage with BoU to ensure alignment before any action is taken. We are confident that we are well-capitalised and hold sufficient liquidity buffers that make us well situated to support our customers and shareholders in this difficult time,” he said.

In the period under review, Stanbic Bank registered growth in private sector credit, which in 2019 grew to Shs1.8 trillion from Shs1.5 trillion in 2018.
This represented a growth rate of about 12.3 per cent year, indicating increased appetite for credit.

Additional reporting byy Martin Luther Oketch

dnakaweesi@ug.nationmedia.com