Kampala, Uganda | THE INDEPENDENT | The financial sector forecast is that the full effect of the Covid-19 pandemic will be realized in the next two years when investments and projects that were started earlier were supposed to have started yielding returns.
The real bad effect of the pandemic has not started being felt because even despite the decline in revenues from both local and foreign sources for households and enterprises, the banking sector reported profits over the year 2019/2020.
Banks also continue to report increasing deposits contrary to projections at the beginning of the lockdown as it was expected that there would be reduced excess incomes for people to save or deposit.
Experts say this scenario was not due to an increase in incomes but rather, individuals and entrepreneurs either had nowhere to invest their money, or decided not to risk investing in an uncertain period hence the decision to keep their money safe.
This supports the claims by the financial sector that there was a reduction in the rate of borrowing either because there were reduced investment opportunities or an increased risk level for investing or both.
The Bank of Uganda says in addition to this, there is evidently higher credit risk and this will continue making it hard for the private sector to get access to loans.
At the end of March just before the lockdown, the non-performing assets or the loans that have taken too long to be serviced were worth 5.4% of the total debt stock by banks, and by June, this had risen slightly to 5.5%.
In September, these bad debts had dropped to 5.1% of the total loan amounts to the banks by the customers.
Equity Bank Uganda Managing Director, Samuel Kirubi says some investments like schools which had loans continue to be locked down, and they cannot pay and such long term investments which remain stalled will have long-term effects on the economy.
More than 40 percent of the loans given out have either been restructured by having the repayment period extended while some of them had their interest accruing from the lockdown period waived.
The total value of the restructured loans is about 6.7 trillion as of September. The trade sector accounts for most of the restructured loans of all sectors, followed by services, manufacturing, real estate and salary loans.
BoU director for supervision Tumubweine Twinemanzi says the fall in the ratio of non-performing loans has nothing to do with an improved situation, but the restructuring measures put in place.
The restructured loans are yet to be included in the NPL category because it is expected they will be repaid after the situation induced by the pandemic eases. He says that loans whose borrowers were given credit relief are actually coming back to have their loans restructured again.
The Central bank is worried for the financial sector and the economy as a whole, that the relief measures were a temporary move and soon, the borrowers will bear the cost of repaying the loans.
Tumubweine also says the government will have to increase its borrowing from the domestic market because of the big budget financing gap left by the local revenue mobilization and the external sources.
To help the local enterprises and borrowers to normalize, Equity MD Kirubi says the banks have a bigger role to play not only in digitalizing their operations for easy access, but to also get closer to the borrowers by taking interest in what they are doing.