Non-performing loans grow by Shs123b in three months

Loans that have not received any payment for sometime have grown to Shs894b. Photo | File  

In Summary

• The banking sector, according to UBA is also experiencing a number of challenges, among which include shortage of patient capital, cost of doing business, increasing non-performing loans and reluctance of companies to list on the stock exchange.

By MARTIN LUTHER OKETCH

Uganda Bankers Association (UBA) has said the level of non-performing loans has increased by Shs123b in the quarter ended June 2020.

The increase, which indicates a percentage growth of 5.8 per cent, means that the banking sector now has Shs894b worth of loans on which no payment has been made for some time.

During his presentation in the Fourth Economic Growth Forum held in Kampala yesterday, Mr Wilbrod Owor, the UBA executive director, said there was a likelihood of further deterioration because some of the loans that had been restructured about three months have reached the maturity relief period.

The Central Bank had instructed banks to restructure loans on a case-by-case basis during April for a period of 12 months.
Whereas, the restructuring period will go on up to April 2021, some of the loans that had a short relief period are due.

Banks offered restructure and holiday payments of three, six, nine and 12 months.
Mr Owor said 50 per cent of the restructured loans during April, May, June, were in real estate and trade but the banks are now restructuring loans for big enterprise.

He also noted that a non-performing loans stress outlook conducted recently had found that bad loans are likely to increase due to Covid-19.

“The outlook and stress tests indicated that non-performing loans might rise to 7.2 per cent, which will be equivalent to Shs1.2 trillion by end of September or 9.1 per cent, equivalent to Shs1.33 trillion by end the of December,” he said.

The outlook also indicated that small and medium enterprises and real estate sector were the most stressed, which possess default risks on loans in the two sectors.

Across in Kenya, UBA said, non-performing loans had grown by 13 per cent against a total loan book of Shs99 trillion compared to Uganda’s Shs16 trillion.
Mr Owor also indicated that banks have increased investment in treasury bills (which now stand at 38 .2 per cent) to shield themselves from risks associated with credit extension.

The banking sector, according to UBA is also experiencing a number of challenges, among which include shortage of patient capital, cost of doing business, increasing non-performing loans and reluctance of companies to list on the stock exchange.

Payment holiday
According to Mr Owor, as of July, banks had restructured loans amounting to Shs5 trillion but loans to education intuitions possess a big challenge given that there is no certainty on when the sector will be able to service them.

moketch@ug.nationmedia.com