Uganda: Nearly Half of Bank Loans Restructured

Financial institutions have restructured nearly half of their loan portfolio, signaling the devastating effect of Covid-19 on the economy.

Dr Adam Mugume, the Bank of Uganda director for research told Daily Monitor that banks by January had restructured nearly half of their loans, which represented 46 per cent of the total loan portfolio in the banking sector.

This was an increase from 40.5 per cent recorded in September, which was translating to Shs6.73 trillion of restructured loans.

However, according to a banking sector market report by Stanbic Bank, by December 2020, restructured loans stood at Shs7.7 trillion, reflecting 44.6 per cent of sector gross loans. At least loans worth Shs764.5b of those that had been restructured were overdue by then.

The Central Bank had last year asked financial institutions to restructure loans for customers on a discretionary basis to cushion the economy from the effects of Covid-19.

The credit relief period, which had been expected to end in April, was extended by Bank of Uganda for another six months effective April 1.

Ms Anne Juuko, the Stanbic Bank chief executive officer, said the Central Bank's credit relief measures were instrumental in moderating the rise of non-performing loans. Increasing NPL's affect banks' asset quality, which in turn impacts the economy.

Mr Sam Mwogeza, Stanbic chief financial officer, revealed that those material outstanding restructures, especially in the education and tourism were because they were still locked, noting that whereas the banks' asset quality had been deteriorating prior to Covid-19, it was now worsening.

The non-performing loan ratio grew to 5.3 per cent in December from 5.1 per cent in September.

However, Ms Juuko said there was hope as the number of restructured loans is beginning to narrow due to the recovery of economic activities.

"For the first time, you had 40 per cent of the total outstanding bank debt being under restructure. Now, I am pleased to announce that those numbers are getting better and better. With every wave of restructuring, we see a smaller amount restructured which is an indication that businesses are recovering and able to take care of their loan obligations," she said.

Ms Juuko, who was speaking ahead of the release of Stanbic's financial results, also projected that the banks' asset quality will continue to dog the industry for about three years and will determine the financial institution's performance.

Foregone interest

Ahead of releasing bank's results for the year ended December 2020, Stanbic, Mr Mwogeza said it had foregone Shs26b in interest payments due to a reduction of average prime lending rate from 18 per cent to 16.6 per cent.

Bank of Uganda in 2020 maintained a low lending rate of 7 per cent and directed commercial banks to respond by reducing the prime lending rate.

The move is aimed at drive an increase in private sector credit uptake which had plummeted during the lockdown period.

Stanbic believes that Uganda's economic recovery will be driven by the oil and gas sector among other factors.

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