Overview:
Commercial bank credit plays a critical role in economic expansion by channeling savings into productive investment. However, the latest figures suggest that much of this capital continues to flow toward short-term consumption and trade, rather than long-term productive sectors.
As the 2025/26 financial year unfolds, Uganda’s credit landscape is revealing a familiar pattern: banks continue to favour households and consumption-linked sectors, even as government borrowing tightens liquidity in the domestic market.
According to the Ministry of Finance’s October performance of the economy report, personal and household loans once again dominated credit approvals, underscoring the central role of consumer borrowing in driving bank lending.
Commercial bank credit plays a critical role in economic expansion by channeling savings into productive investment. However, the latest figures suggest that much of this capital continues to flow toward short-term consumption and trade, rather than long-term productive sectors.
In October 2025, personal and household loans accounted for 24.7 percent of all credit approved—equivalent to Shs477.5 billion—making them the single largest recipient of bank lending. Trade followed with 16.2 percent (Shs312.8 billion), while building, construction and real estate took 12.8 percent (Shs247.9 billion). Business, community, social and other services absorbed 11.9 percent (Shs229.7 billion).
Productive sectors also featured prominently, though at lower levels. Agriculture received 11.8 percent of approved credit, while manufacturing accounted for 11.3 percent—figures that highlight both the resilience and the financing constraints facing Uganda’s real economy.
Credit approvals ease, but demand remains strong
The total value of credit approved for disbursement in October stood at Shs1.9 trillion, down slightly from Shs2.1 trillion in September. Despite the decline, banks approved a higher proportion of loan applications, with the approval rate rising to 76.7 percent from 75.5 percent the previous month—an indication of sustained credit demand and cautious lender confidence.
Government borrowing shapes market dynamics
While private-sector credit showed modest easing, government borrowing remained robust. In November 2025, the government raised Shs2.045 trillion through three auctions of treasury securities on the domestic primary market.
Of this amount, Shs605.4 billion was mobilised through Treasury Bills, while Shs1.4 trillion came from Treasury Bonds. A significant portion—Shs376.35 billion—was used to refinance maturing securities, with the remaining Shs1.6 trillion channelled toward financing other budgetary needs.
The government’s continued reliance on domestic borrowing reflects persistent fiscal deficits and the growing importance of the local market in funding public expenditure.
Yields ease on short-term bills, rise on longer bonds
Market conditions showed mixed signals. In November, yields on short-term Treasury Bills declined slightly, with the 91-day and 364-day tenors falling to 11.5 percent and 14.9 percent respectively, from 11.7 percent and 15 percent in October. In contrast, the 182-day bill edged up to 13.7 percent from 13.1 percent.
Investor appetite remained strong, with all Treasury Bill auctions oversubscribed. The average bid-to-cover ratio stood at 1.66, signalling sustained demand for government securities despite shifting yield dynamics.
On the bond market, the government reopened two-year, five-year, 15-year and 25-year tenors in October. Except for the two-year bond, yields rose across all maturities compared to previous auctions—an indication that investors are demanding higher returns to lock in funds for longer periods.
A balancing act for growth
Together, these trends highlight a delicate balancing act. While banks continue to lend—primarily to households and trade—the government’s heavy presence in the domestic market is shaping interest rates and influencing where capital flows.
The challenge ahead lies in ensuring that credit increasingly supports productive investment in sectors such as agriculture, manufacturing, and construction—critical engines for sustainable growth—while managing public borrowing in a way that does not crowd out private enterprise.