Latest data from the BoU’s State of the Economy Report released last December indicates that over the last five years, Uganda’s economy has grown at an average of 4.5% compared with an average of about 7.5% between the years 2000 and 2011.
“The domestic economic growth outlook remains subdued, although the low point of the cycle appears to be behind us,” reads in part the BoU report.
It is this gloomy outlook and harsh economic environment that is currently making banks unsure of whom to extend credit especially on personal loans.
The BOU’s take-over of Crane Bank in October last year was reportedly attributed to few huge companies and powerful individuals who borrowed and failed to honor their loan obligations due to a bad economy.
It is on this basis that banks could still concentrate their bigger efforts towards lending to the government through treasury bills and bonds which are risk free at the expense of private sector borrowers.
But even in the TB segment, BoU reports indicates that yields on all categories of TBs were on a downward trend hence signaling limited profitability.
According to the report, the yields on the 91-day, 182-day and 364-day Treasury bills (T-bills) averaged 14, 15, and 16 % in the three months to November 2016, down from 20, 22 and 23%, respectively during the same period in 2015.
Also for T-bills, the yield on the benchmark 2-year Treasury bond (T-bond) also declined to 16% from 21% during the same period.
But business executives say the only way to avoid NPLs is for commercial banks to lower interest rates that will also translate into lower costs of doing business.
“There is nobody who gets a loan and fails to pay, whoever fails it means the terms and conditions are not favorable,” said Martin Okumu, the head of communications at the Uganda National Chamber of Commerce and Industry.
Okumu, like his friends at Kampala City Traders Association, Private Sector Foundation Uganda and Uganda Manufacturers Association, argues that higher interest rates lead to high costs of operations that eventually lead to high prices.