According to Gideon Badagawa, commercial banks are reporting an increase in non-performing loans (NPLs) because they are profit-driven and unconcerned about the success of the businesses to which they lend money: The New Vision first reported Sunday.

Last week Uganda Development Bank (UDB) held a meeting with members of the National Economy Committee of Parliament and other stakeholders of the sector. During this meeting, Uganda Development Bank was applauded for its consistently good performance over the last several years.

In attendance was Executive Director of the Private Sector Foundation, Gideon Badagawa who expressed sentiments regarding Uganda’s struggling economy: attributing this to commercial banks which neither care for their loanees nor the performance of their loans.

He juxtaposed the success of Uganda Development Bank to commercial banks which, though swimming in profit, experience high and rising Non Performing Loans saying “The commercial bank cannot be reading sh300b in profits and then you have these rising NPLs. You read a big balance sheet for a bank but you also read very high NPLs. Every newspaper you read has properties that are being sold. This is because when you go to commercial banks, they ask you for collateral; they are not minding about how you will perform.”

Badagawa was quoted passionately chastising commercial banks for merely asking for collateral with no regard to the performance of the businesses for which the loans are procured. He noted that commercial banks need to have a development angle, where they feel for the borrowers, instead of being profit-minded. He further urged the members of the National Economy Committee of Parliament to challenge Bank of Uganda to re-examine the licensing criteria for commercial banks and incorporating standards how they will manage NPLs.

According to the Bank of Uganda Quarterly Financial Stability Review report, December 2020, the ratio of non-performing loans to total loans (NPL ratio) for commercial banks rose from 4.9 percent in December 2019 to 5.3 percent in December 2020. Mr. Badagawa was quoted referring to Uganda’s commercial banks as “predators” for bringing the economy right to its knees due to their failure to support the country’s small and medium enterprises especially as regards their failure to meet loan obligations.

On the other hand, the Executive Director was seen to praise Kenya’s practice of Islamic banking which exercised a development angle to their lending in that profits made by the commercial banks were shared with the stakeholders of the sector and this created interest in the performance of business and observed that this was the norm in other African countries like Rwanda and Ethiopia.

During the meeting, UDB was commended for its approach of supporting borrowers by first training, advising and working with them before and after extending credit, saying that this should be adopted by commercial banks to lower NPLs.

Mr. Henry Magino, a member of the UDB Board of Directors expressed his appreciation to the committee for their continued support particularly in terms of approval of the various lines of credit and guarantees for the Bank noting that this has enhanced their capacity to support projects that have promoted inclusive growth in the country ultimately leading to generation of even more socio-economic impact.

This meeting was held at Kampala Serena Hotel and other strategies were shared in extension of financing SMEs around Kampala.

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