A recent study conducted by the local media house over a three-month period has revealed that many individuals and businesses in Uganda are selling their properties and vehicles to repay loans. The study found that 750 buildings were put up for sale, and 1,123 cars were auctioned during the same period due to loan defaults.
Commercial lenders have attributed this surge in auctions to a combination of factors, including the impact of COVID-19 lockdown measures and global disruptions, as well as geopolitical events like the Ukraine-Russian war. These challenges have left borrowers in financial distress, prompting them to sell their assets to cover their debts.
Gladys Muchae, the head of credit at Stanbic Bank, noted that while inflation remains low, the prices of essential goods like fuel and food have remained high. Additionally, rising school fees have put financial pressure on parents, leading some to sell their properties to make ends meet.
Despite these economic challenges, some lenders see signs of recovery in sectors such as education and manufacturing. They believe that people are capitalizing on the improving economic conditions to bounce back from loan defaults.
Apollo Kaggwa, the director of economics at the Finance Ministry, believes that the situation may not be as dire as it seems. While some businesses, like private schools, have faced foreclosures, others in manufacturing, industry, and agriculture have made recoveries. Kaggwa attributes this to government policies, such as increased taxes on imported textiles.
However, high-profile entities like Aya Group and Biyinzika Poultry have not been immune to the financial difficulties of the past three months, indicating a widespread economic challenge.
Thadeus Musoke Nagenda, chairman of the Kampala City Traders Association (Kacita), highlighted the hurdles borrowers face when acquiring loans, including bureaucratic processes and associated costs. He called for government programs to support business sustainability and investment in real estate.
While Uganda’s non-performing loan ratio remains relatively high, it has not yet reached double digits, which is seen as a positive sign. Lenders believe that the country’s economic stability, stable exchange rates, and interest rates will help normalize the situation over time, provided there are no major shocks.
In a separate report, it was found that banks expect a decrease in the default rate for short-term loans but anticipate an increase in default rates for large enterprises, partly due to delayed government payments, the Russia/Ukraine conflict, and the slow recovery from COVID-19.
Banks largely expect their lending rates to remain unchanged, citing their alignment with the Central Bank’s direction, which is expected to remain steady in the coming months. However, some banks foresee an increase in lending rates due to high fund costs and increased risks associated with customers.