BoU survey shows banks shifting from business loans to salary earners

Uganda’s commercial banks are tightening lending to businesses—particularly those seeking long-term financing—while aggressively competing for salaried household borrowers, signalling a major shift in credit allocation amid growing concerns over loan defaults.

The latest Bank of Uganda Bank Lending Survey shows lenders are becoming increasingly cautious about extending credit to sectors considered vulnerable to economic uncertainty, including construction, real estate, transport, education and business services.

The survey, which covered the quarter ended June 2026 and banks’ expectations through September, found that while demand for business credit remains strong, lenders are becoming more selective, favouring short-term, well-secured facilities over long-term investment loans.

Banks expect credit standards for long-term business loans to tighten significantly in the current quarter, while lending conditions for short-term borrowing are projected to remain largely unchanged.

The findings suggest businesses seeking financing for factories, commercial buildings, industrial equipment, transport fleets or other capital-intensive investments are likely to encounter stricter collateral requirements, shorter repayment periods and tougher approval processes.

Construction and real estate emerged as the sectors facing the greatest pressure.

According to the survey, banks are increasingly wary of financing projects with long repayment periods and uncertain cash flows, particularly speculative property developments and projects without secured buyers or guaranteed income.

The central bank also linked the tighter lending stance to recent demolitions and enforcement of urban trade regulations, which it said have disrupted businesses, reduced productivity and weakened the repayment capacity of some borrowers.

Private schools and other social service providers are also expected to face greater scrutiny after lenders reported rising default rates among education institutions, many of which struggle with seasonal cash flows and delayed school fee payments.

Transport and communication businesses, especially smaller fleet operators and logistics firms, are similarly expected to find borrowing more difficult as lenders factor in rising fuel prices, exchange rate pressures and higher operating costs.

While business lending tightens, the retail market is moving in the opposite direction.

Banks eased lending standards for household loans during the quarter and expect to relax them further through September as competition intensifies for salary-backed borrowers.

The survey attributes the shift to the relative security of salaried customers, whose loan repayments can be deducted directly from payroll, reducing the risk of default compared to businesses exposed to fluctuating revenues and operating costs.

Commercial banks are increasingly targeting personal loans, mortgage products and digital lending solutions as part of efforts to expand their retail loan portfolios.

However, the central bank cautioned that household lending is not without risk.

Banks reported an increase in household loan defaults during the quarter, driven by rising living costs, unemployment, delayed salaries and broader economic uncertainty. Even so, lenders appear willing to absorb that risk for borrowers with stable employment while remaining cautious toward higher-risk customers.

Despite tighter lending standards, demand for business credit is expected to remain resilient as companies seek working capital, finance government contracts and replenish inventories.

However, demand for long-term borrowing has weakened considerably, suggesting many firms are prioritising day-to-day operations over expansion projects.

The survey indicates that Uganda’s banking sector is not withdrawing from business lending altogether but is reshaping its risk appetite. Credit is increasingly flowing towards short-term facilities, salary-backed consumers and businesses with strong collateral or government-backed contracts, while long-term investment financing is becoming harder to secure.

For sectors such as construction, manufacturing, tourism and agriculture—which depend heavily on patient capital—the trend could slow investment and expansion even as overall credit demand continues to grow.