Banks in Uganda lend out over Shs1.4 trillion in three months

Commercials banks and other financial institutions operating in Uganda extended credit worth Shs.1.4 trillion in the three months leading to August 2024 amid improved economic conditions spurred by a decline in inflation.

According to the Bank of Uganda’s Monetary Policy Report for October 2024, the net credit extensions rose in the three months to August 2024 from Shs.1.4 trillion from Shs.402.7 billion in the three months to May 2024.

This the Central Bank attributes to businesses beginning to build inventory for sale and end of year festivities.

The demand and supply of credit also rose in the three months to August 2024 compared with the three months to May 2024 due to increased optimism among firms and households as inflation abates.

“Demand for and supply of credit rose to Shs.6.5 trillion and Shs.4.3 trillion in the three months to August 2024 from Shs.5.3 trillion and Shs.3.7 trillion, respectively in the three months to May 2024,” the report states.

However, the rate of approval for credit fell to 65.2 percent in the three months to August 2024 from 70.0 percent in the three months to May 2024.

According to the Credit Demand Survey conducted by BoU for the third quarter of 2024 (2024Q3), the main challenges cited for loan access included lower business earnings and insufficient collateral.

Nevertheless, private sector credit is expected to continue strengthening in the near term, supported by the strong demand from manufacturing, trade, and transport sectors. The improved macroeconomic environment coupled with increased availability of loanable funds from commercial banks and other financial intermediaries is likely to drive further growth in the medium term. The upside risks to this outlook include favourable macroeconomic conditions, increased public and private investments, and favourable weather conditions for borrowers in the agriculture sector. The downside risks include increased government borrowing that may crowd out the private sector, global economic uncertainty, and credit risk concerns. Overall, the risks to private sector credit growth are tilted to the upside.