Banks’ lending up by 40%

Jun 21, 2009

Commercial bank credit to the private sector surged by 40.1% to sh3.6 trillion in the year to March 2009, with the lion’s share going to the real estate sector and individual borrowers, a finance ministry report shows.

By Sylvia Juuko

Commercial bank credit to the private sector surged by 40.1% to sh3.6 trillion in the year to March 2009, with the lion’s share going to the real estate sector and individual borrowers, a finance ministry report shows.

The report indicates that the figure compares with the sh2.6 trillion given out as loans to the private sector at the end of March 2008.

Out of the total credit disbursed, sh1.6 trillion or 42% was for personal and households, real estate and related activities, adds the report.

However, it is not clear whether individual borrowers used the loans for their intended purposes or for consumption.

Credit to the private sector has been increasing despite its high cost.

This means the demand for money continues to outstrip what is available.

The report points out that local lending rates remain high compared to those of other members of the East African Community.

“The upward pressures on lending interest rates could be attributed to the high costs of doing business in the country as commercial banks extend their branch networks, poor information sharing amongst banks regarding borrowers, inadequate legislation on matters of property rights, contracts, and collateral registries, increased investment in foreign assets,” the report says.

To compound the problem, the report discloses that commercial banks prefer to invest in government securities, which are considered risk free.

It is hoped that the central bank’s licensing of the Credit Reference Bureau, licensing additional commercial banks to increase competition and publishing interest rates and charges by different financial institutions on a quarterly basis, would lower interest rates.

There are 21 commercial banks operating in Uganda, up from 17 more than 10 years ago.

While the private sector credit increased in the period under review, agriculture sector’s share of total credit declined by 16.3% of which lending for production dropped by 5.5%.

The agriculture sector employs over 80% of Uganda’s estimated 32 million population.

The report shows that in the nine months between June 2008 and March 2009, total private sector credit increased by 28.3%, despite the global economic downturn.

According to the report, private sector credit for manufacturing grew by 56.4% in the same period compared to a growth of 26% the sector registered between March 2007 and March 2008.

Within the manufacturing sector, loans went to foods, beverages, tobacco leather/textiles, chemical, pharmacy and rubber products, and building and construction material companies.

Commercial bank credit for building and construction grew by 48.8% to sh387.7b by March 2009, up from sh260.5b in March 2008.

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