Uganda registered a drop in the demand for loans by the private sector between March and April this year, a Bank of Uganda monthly report shows.
According to the Bank of Uganda State of the Economy report for the month of June 2021, whereas the private sector demand for loans, technically referred to as Private Sector Credit (PSC) growth, increased from 6 percent in August 2020 to 10.1 percent in February 2021, it slackened in March-April 2021, averaging 8.4 percent.
BoU attributes the drop to the fact that PSC could be unduly discouraged by higher non-performing loans (NPLs) this year, as forbearance periods come to an end and the real impact of the Covid-19 pandemic on businesses and individuals becomes clearer.
Notably in April 2021, annual PSC growth fell to 7.0 percent from 9.7 percent in March 2021 partly driven by a reduction in credit supply due to increased risk aversion by lenders.
As at the end of March 2021, the restructured loans under BoU’s COVID-19 credit relief measures amounted to Shs. 6.6 trillion of which Shs. 3.7 trillion remain outstanding
According to the report, the growth in PSC was on a sustained gradual increase since August 2020, reflecting the lower cost of borrowing following the easing of monetary policy by BoU. Total PSC grew by 10.1 percent in February 21, up from 6.7 percent in August 2020.
The PSC is expected to remain subdued especially as the impact of the second lockdown hits the economy.