Commercial banks are forecasting a rise in credit demand over the next three months, as indicated in the Bank Lending Survey for the 2022/23 period by the Bank of Uganda. The report points out that the renewal of supplier contracts with the government in the upcoming fiscal year and an expected increase in economic activity towards the end of the year will significantly contribute to this surge in credit demand.
According to the report, most banks attribute the anticipated increase in credit demand to several factors, including the steady recovery of the economy following external supply and Ukraine war-related shocks. Other key drivers include the demand stemming from the renewal of supplier contracts with the government at the beginning of the new financial year, the budget reading in June 2023, and preparations for year-end financing requirements in anticipation of the festive period.
In the current economic landscape, private sector credit remains relatively low due to a combination of factors such as weak overall demand, increased credit costs, and heightened risk aversion among market participants.
For example, data from the Bank of Uganda shows that total private sector credit growth has gradually declined to 6.5% in June 2023, down from 9% in May 2023 and 10.7% in April 2023. During the three months leading up to June 2023, total credit extensions decreased by sh7.4 billion from sh4.4 trillion in the three months ending in March 2023, while recoveries increased by sh126 billion from sh3.9 trillion over the same period.
