All supervised financial institutions except one have given some sort of credit relief to their customers as a measure to mitigate the impact of Covid-19 on the economy.
The Bank of Uganda’s financial stability report for June found that only one financial institution, which the report does not mention, did not provide any credit relief because it did not receive any applications.
Daily Monitor had not independently determined which financial institution it was.
Dr Fred Muhumuza, professor of economics at Makerere University over the weekend, said it could be because clients saw no interest in the restructuring or that the bank had received some requests, had them examined but refused.
On the other hand, other supervised financial institutions provided credit relief in July on loans worth 5.9 trillion shillings.
“The total loans granted in April, May, June and July amounted to 5.9 trillion shillings,” the report said.
“The stock of loans, which were subject to credit relief at all banking institutions at the end of July, stood at 4.8 trillion shillings, equivalent to 31.2 percent of the total. loans, ”the report adds.
Earlier this year, the Bank of Uganda ordered commercial banks to restructure lending to individuals and businesses as the Covid-19-induced lockdown affected businesses and economies around the world.
The report reveals that financial institutions have responded to requests from their clients and adhered to the instructions of the Bank of Uganda. “The acceptance rate of requests for credit relief was very high at 98.3%, with 893,018 requests approved out of 895,241 requests,” the report partially states.
It is also reported that the trade, real estate, manufacturing and transportation sectors have benefited the most from restructuring.
Ready to repay
Loan restructuring began in April, during which time over Shs2 trillion in loans was restructured.
According to BoU, the initial credit relief granted in the form of a loan repayment holiday in April-May 2020, which was estimated at 1.3 trillion shillings, is starting to expire.
Commenting on the likelihood of companies paying off the loans, Dr Muhumuza said that while some companies, especially transport companies such as motorcycles and buses, have resumed operations, many others are still under lockdown or semi-lockdown.
This presents a very high probability that maturing loans will turn into bad or non-performing loans. “A number of businesses have not recovered, the arcades have just started to reopen, the schools are still closed, they also had loans, hotels, lodges, all of this still does not work. If they restructured them, they automatically become NPLs, ”he said.
Nonperforming Loans (NPLs) currently stand at 5.8 percent and are expected to increase if borrowers continue to struggle and are unable to regularly maintain their laons.
The central bank also revealed that the increase in NPLs in the quarter through June 2020, which affected the asset quality of banks, is mainly attributed to the deterioration of the real estate, trade and financial sectors. households.
Banks noted, however, that there had been a challenge in restructuring loans occasioned by limited access to customers due to pandemic containment measures and borrower misconceptions about the eligibility and terms of restructured loans. .