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Non-performing loans jump to UGX 783 Bn – BoU

Many borrowers are still unable to work and honour their loan obligations

Kampala, Uganda | THE INDEPENDENT | The amount of money where borrowers have not made any payments for at least three months grew by 15 percent to 783 billion Shillings between January and March 2020, the Bank of Uganda has said. This is a growth from 666.3 billion Shillings of loans not being paid as registered in December 2019.

Also referred to as non-performing loans (NPL), their growth is an indicator of a bad economy where borrowers are unable to work and honour their loan obligations. For the NPL, banks still have hope of recovering it.

The Central Bank’s quarterly financial stability report says the trend of people failing to pay “was observed across most banks and sectors although agriculture was affected most.” This trend, BoU says has been observed since March 2019, a year before the coronavirus troubles came in. This means long before lockdown, many businesses and individuals were struggling to thrive.

On the whole, the amount where borrowers have failed to pay anything in at least three months jumped to 5.4 percent of the total loans out in March 2020 compared to 4.7 percent as at end of December 2019. BoU expects this percentage to grow to the ranges of 6.3 – 12.3 percent in the next six months.

While appearing before Parliament’s National Economy committee on the national economy last month, the Uganda Bankers’ Association (UBA) executive director Wilbrod Owor said that in April alone, commercial banks restructured loans to a tune of 2.02 trillion Shillings as a result of the effects of the COVID-19 lockdown on businesses.

This means  that borrowers received between three to 12 months of holiday where they wouldn’t be required to make periodic payments even though interest on their loans would continue to accumulate.

Meanwhile, BoU reports that from the stress tests, four domestically systematic important banks, Stanbic, Standard Chartered, ABSA, and Centenary bank– held sufficient capital and liquidity buffers as at end March 2020 and were profitable for the quarter.

Domestically systematic important banks are those banks too big to fail or whose failure can have the most adverse impact on the entire economy.

“Quarterly micro stress tests conducted on the banking system at the end of March 2020 showed that on aggregate, the banking sector is resilient to most plausible shocks in the short term,” BoU said.

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