Kampala — Despite the continued easing in the Monetary Policy Stance, demand for credit by the private sector has remained lukewarm and this is likely to determine whether the economy will finally overcome the effects of 2012 to record significant growth.
However, the effects of 2012 will have to first be mitigated by any gains from 2013 before any significant growth can be recorded.
With the Bank of Uganda Governor confirming last week that there will be slight growth in 2013 because of muted growth in shilling denominated loans, commercial banks will increasingly find themselves under pressure to reduce on their lending rates.
Uganda's economy grew by 3.2% in the FY2011/12 but showed signs of a recovery around December 2012 after withering down a harsh economic climate through most of 2012.
However, Prof. Emmanuel Mutebile, the Governor Bank of Uganda while announcing the Monetary Policy Statement for February 2013 in Kampala last week said that much as there were signs that there was economic recovery, private sector lending which determines investment decisions is projected to remain low hence slight growth is expected in 2013.
"There are signs that economic growth momentum has picked up slightly and will continue to do so for the remainder of 2013.
"However the downside risk to economic outlook is the projection for the continued subdued private sector credit growth and high lending interest rates which have continued to impact on private sector spending decisions," Mutebile said.
He added that the overall outlook is for subdued domestic demand the persistence of current excess capacity into the next financial year.
Mutebile also said that following the stance of monetary easing that had taken place, there were indications that growth in monetary aggregates had continued to recover from the subdued growth rates of 2012 though at a slow pace.
He however noted that the recovery in shilling denominated loans to the private sector had remained muted.
Dr. Adam Mugume, the Director of Research at the Central Bank says that demand for credit had been declining from around mid 2012 as people who were applying for credit and the amount being applied for dipped as well.
"It was only in December that we saw it recovering but it had been declining for a period. Nonperforming loans had shot up from about 2% to 4.7% as at September. So that increase made banks shy away from giving loans," Mugume said, adding, "Even as people wanted to borrow, banks were less willing to lend."
That tendency explains why even when interest rates were high, commercial banks were calling on people to apply for loans.
According to figures availed to the East African Business Week from Centenary Bank, the country's biggest indigenous bank, there are between 8,000 to 9,000 loan disbursements per year.
Ms. Allen Ayebare, the Banks Corporate Affairs and Communications Manager explains that the most applied for loan is the micro-business loan and agricultural loans which are in line with the bank's strategy to diversify its loan portfolio.
The bank also offers loans from as low as Ush100,000 ($38) which isn't the case in other banks while non-traditional securities like unregistered land and chattels are also accepted Centenary Bank.
Bank of Uganda announced that it was maintaining the Central Bank Rate (CBR) at 12% for third month while the Bank Rate drops to 16% from 19% the previous month.