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Ugandan banks not yet out of the woods

The real impact of COVID-19 pandemic on banks will be seen in the second or third quarter of next year

Kampala, Uganda | ISAAC KHISA | Ugandan commercial banks may believe that they are headed for recovery amid the novel coronavirus pandemic but the headwinds are still big, said Tumubweine Twinemanzi, Director Supervision at the Bank of Uganda.

The banking industry executives had appeared optimistic of a rebound in the banking activities owed to a sharp drop in the non-performing loans from 5.8% at the end of June to 5.1% at the end of September this year. This is far lower than that the 5.4% recorded at the end of March, 2020.

But Twinemanzi, who spoke during Equity Bank’s rebranding ceremony at Kampala Serena Hotel on Dec. 17, said there’s now a worrying trend of businesses requesting for second restructuring of loans.

“…We notice that there’s a slight uptake of about 16% of all the loans that have been restructured going to the second restructuring exercise within this pandemic period,” he said. “This implies that some of the business that were initially given some credit relief, the distressed they faced then, still remains.

“What will happen then when we decide to unwind these credit relief? Possibly we shall know these in the next 100 days,” he added. The BoU in April this year granted permission to all banking institutions to provide a 12-months credit relief through the restructuring of loans of both corporate and individual customers who were or would be affected by the COVID-19 pandemic.

The objective was to ensure financial stability and alleviate the impact of the COVID-19 pandemic on the financial sector
and economic growth.

So far, the banking institutions have restructured loans with clients worth Shs 6.7 trillion, according to the BoU.

This means that the restructured loans are yet to be included in the NPL category as it is anticipated that they will soon be repaid as the pandemic-induced situation eases.

Twinemanzi, however, noted that bank deposits grew 20% year-on-year as at the end of September this year, signaling that it is the borrowers who are still having significant stress that has persisted longer than anyone expected.

“Maybe we’re just seeing the first part of the bigger effect of the pandemic on banks,” he said, adding that the real impact of COVID-19 on banks will be seen in the second or third quarter of next year.

Twinemanzi said though the banking industry has exhibited a lot of resilience, the outlook remains uncertain with several
potential vulnerabilities around liquidity, risk aversion, capitalization, and asset quality, prospect of a sluggish economic growth as well as the impact and duration of the pandemic on the banks.

Meanwhile, Apollo Makubuya, board chairperson at Equity Bank Uganda said the lender has registered tremendous growth since it expanded into the country in 2008.

He said currently the lenders deposits stands at Shs 1.5trillion while the loan book has increased from Shs 80bn in 2008 to Shs1.2trillion in 2020.

He said the lenders’ profit after tax also increased from a loss of Shs21bn to Shs 50bn profit during the same period under review, and that it is expected to record some profits this year amidst COVID-19 pandemic.

“The number of customers have grown from 200,000 to more than a million in 2020,” he said, adding that the lender is now focused on deepening financial access countrywide.

Samuel Kirubi, the managing director, Equity Bank Uganda, said the new look is symbolic of Equity’s next phase of transformation to a unified brand offering integrated financial services in line with its vision of championing the socio-economic prosperity of the people of Africa.

He said the new look signals Equity’s commitment to an enhanced customer experience going forward. “We are constantly innovating to make the customer journey simpler and easier and to ensure that our offerings are constantly relevant to the evolving needs and aspirations of our customers,” he said.

“These improvements will continue to be progressively rolled out supported by customer education. We have witnessed how Equiduuka, our agency infrastructure has broadened financial access and deepened financial inclusion while at the same time earning them an extra revenue stream and creating jobs in rural and urban centres.”

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