In recent findings, banks in Uganda have made adjustments to their lending practices across various sectors of the economy. The changes were outlined in a report by the Bank of Uganda, shedding light on the state of credit standards and lending patterns.
During the period ending in June, the report indicates that banks implemented tighter credit standards for entities involved in building, mortgage, construction, and real estate, among others. This tightening of standards may indicate concerns about increased exposure and potential risks of default in these sectors.
The report also highlights that lending standards were adjusted in other sectors, including mining and quarrying, transport, and communication. However, lending requirements were eased for the remaining segments of the economy.
According to the report, the degree of easing in credit standards decreased for most sectors in June 2023 compared to the previous quarter, with exceptions in personal loans and household, community, social, and other services, which saw an increase.
Notably, lending standards were eased the most for personal and household loans at 38.8 percent, followed by trade at 13.9 percent. Community social and other service lending also saw a 9.5 percent easing, while agriculture and business services and manufacturing experienced easing at 8.1 percent and 0.6 percent, respectively.
In contrast, the report highlights that the building, mortgage, construction, and real estate sector faced the most significant tightening at 39.4 percent. Mining, community social, and transport and communication also saw credit standards tightening at 6.8 percent and 5.1 percent, respectively.
The Bank of Uganda attributed the easing of lending standards in most sectors during the second quarter of 2023 to increased demand for the back-to-school season, a downward trend in inflation (particularly for food supplies), and a relatively stable business environment encouraging trading activities.
Conversely, the tightening observed in the building, mortgage, and real estate sector was primarily due to low property rates and declining occupancy levels.
The report suggests that lending to the private sector has remained subdued, with mixed patterns of flat growth and reductions. For example, according to the August performance of the economy report from the Ministry of Finance, the value of credit approved in July decreased slightly to Shs1.12 trillion from Shs118 trillion, representing an approval rate of 61 percent.
Of the approved credit, 27.3 percent went toward trade, followed closely by personal and household loans at 26.5 percent. Other significant recipients included business, community, social, and other services at 15.6 percent, while agriculture received at least 11.9 percent. Building, construction, and real estate received 11.2 percent.
