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Borrowers to default on loans– BoU survey

Kampala, Uganda | THE INDEPENDENT  | Commercial Banks expect more borrowers not to meet their loan obligations in the three months to the end of December, according to a survey by Bank of Uganda.

BoU says banks had “noticed unfavourable economic conditions experienced during the last couple of months, which were partly manifested through high borrowing costs (interest rates), reduced disposable incomes of households and individual borrowers.”

This means those who are borrowing may find difficulties to pay back.

The survey for the first quarter of 2019/2020 financial year shows that banks are tightening their price terms and conditions for giving out loans. The banks, the central bank says, are specifically tightening terms for lending long term loans and likely to offer short term loans.

The tightening of loan terms for long term borrowers could be due to the fact that the country is entering an electoral period where businesses are affected with most investors putting their spend in Uganda on hold for the period to end. While government is not expected to change, there is uncertainty over the economy in the after 2021. Banks are saying let us wait and see.

The sectors where conditions for taking loans have made harder include building, mortgage, construction and real estate (by 11.0%) followed by transport and communication (9.7%), trade (5.9%), manufacturing (5.1%), mining and quarrying (4.3%), and agriculture (2.7).

For building and mortgages, banks cited increased price fluctuations as the biggest risk. For transport, banks said they expected more accidents as people rush for Christmas festivities which increases the risk profile for the sector.

The tightening to the agriculture sector was attributed to the declining prices of produce due to bumper harvests which has depressed prices for products like milk, sugar, coffee, tea and beans.

Meanwhile, banks indicated they would ease lending terms for short term borrowers and also people that fall in the personal loans category. These usually borrow for consumption and their borrowing is tagged on their salaries, which are easy to collect for the banks.



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