According to the Monetary Policy Report February 2022, the Bank of Uganda said that Private Sector Credit (PSC) growth lost momentum in the quarter to December 2021, due to the uncertainty over a pickup in economic activity, especially as the number of COVID-19 infections were on the rise in November and December 2021 and the increase in Net Domestic Financing (NDF) requirements, writes Martin Mugisha.
Indeed, year-on-year growth in PSC fell to an average of 9.0 percent, down from 9.7 percent in the quarter to September 2021. This comes at the back of the late Bank of Uganda Governor Emmanuel Tumusiime Mutebile’s remarks during the Uganda Bankers’ Association Annual Bankers’ Conference on July 19, 2017, where he stated that whereas demand for credit had exponentially grown over the years, supply had slowed down thus presenting challenges of access to credit.
According to the International Monetary Fund (IMF) in their country report released on 10th March, 2022 covering a five year period , the ratio of commercial Banks’s exposures to government debt and loans increased from 21.9% to 28.3% while the share of Private Sector Credit to commercial banks’ total assets drooped from 47.8% to 40.9%.
While the IMF confirmed “ample liquidity” in the Banking sectors, it was noted that the private sector credit remained subdued at 5.9% year on year in December 2021 majorly reflecting an increase in personal loans. The IMF further explains that despite the credit demand and credit supply having been on an increase since June 2021 to the end of the year, both have been declining in 2021 reflecting a weak demand and Commercial banks’ risk aversion on account of the slow and uneven economic recovery.
According to the Bank of Uganda Monetary report of February 2022, “Commercial banks’ asset quality as measured by the ratio of non-performing loans (NPLs) to gross loans improved in the quarter to December 2021 to 5.3 from 5.4 in the previous quarter,” having peaked at 6% in June 2020.
The report further states that “the ratio is however slightly higher than the pre-COVID-19 level, which could be an indicator that the Credit Relief Measures have so far helped. Although, the industry NPLs ratio is generally low, some sectors of the economy such as Mining, and Real Estate sectors exhibited increases in the NPLs ratios.”
The Bank of Uganda, in the February 2022 Monetary Report further states that “Economic growth recovery is on track and the growth outlook is now stronger than earlier anticipated reflecting a broadening of economic growth as the economy fully reopens, solidifying investor and consumer optimism as signalled by high frequency indicators of economic activity, and supportive monetary and fiscal policies.”
Therefore, the challenge that lies with stakeholders in the banking sector is to innovate products in sectors that support real growth.
As PostBank, we believe there is need to concentrate credit in key priority sectors of the economy to support gainful growth, employment, and inclusion of Ugandans in the money economy.
Over the years, we have concentrated our energies in understanding agricultural financing, thus enabling us to become a leader in building relevant agricultural products as well as offering technical support and advice to not only our clients but Ugandans as a whole. If our minimal support has been able to deliver some results, then the banking sector can innovate more, to facilitate one of the most underfunded sectors. We have also tremendously contributed towards
supporting small and medium enterprises given their importance to Uganda’s economy.
According to data from Uganda Investment Authority, more than 2.5 million Ugandans are employed by small and medium enterprises, which accounts for approximately 90 percent of the entire private sector, generating over 80 percent of manufactured output that contributes 20 percent of the gross domestic product.
Therefore, our belief is, we cannot ignore such a sector. We want to build our contribution to reach certain levels, perhaps to benefit the mass market.
Our determination, as illustrated by our recent intervention to support micro, small and medium enterprises to recover from the impact of COVID-19, is premised on pushing small and medium enterprises’ financing at the forefront in order to achieve sustainable growth in the sector.
PostBank Uganda recently launched the Small Business Recovery Fund to support small and medium enterprises that were impacted by the COVID-19 pandemic, to bounce back.
The bank is dispensing up to UGX. 100 million to these enterprises at a fixed interest rate of 10% per annum. This loan can be accessed from any of our 49 branches countrywide.
The enterprises will also enjoy flexible repayment periods of up to 4 years. A one-year grace period will also be given, depending on the nature of business. PostBank is doing this to reduce the loan burden.
Eligible businesses are those that have been in existence for at least 2 years before the pandemic and employing 5- 49 persons with an annual turnover of between UGX. 10 million to UGX. 100 million. They must also have a demonstrated potential for recovery.
We have also embarked on a journey of building new strategic products such as Bancassurance, Unsecured Bid Bonds and educational financing facilities to drive relevance of the banking industry in terms of impacting the lives of Ugandans.
In all this, we are cognizant of the fact that Uganda does not lack demand for credit, it only requires carefully built products that impact and change lives.
Beyond this, our long experience in the banking sector and organic growth to the level of a Tier One bank, has given us capacity to understand our customers, many of which have come to appreciate our personal banking services delivered through a wide portfolio of saving, fixed deposit, and current accounts.
Therefore, we believe that the desire to stay relevant, supported by our recent transition into a commercial bank and our investment in digital services will afford us an opportunity to reach more Ugandans as we strive to change our country.
The writer is the Chief Credit Officer, PostBank Uganda.