Bank of Uganda in April 2020 granted permission to all banking institutions to provide credit relief through the restructuring of loans of both corporate and individual customers who were or would be affected by the COVID-19 pandemic.
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Manufacturing sector received more money from banks in May 2020
Banking institutions have since April restructured loans with
clients worth 6.7 Trillion Shillings after repayments were affected by the
Covid-19 pandemic.
Bank of Uganda in April 2020 granted permission to all banking
institutions to provide credit relief through the restructuring of loans of
both corporate and individual customers who were or would be affected by the
COVID-19 pandemic.
The objective according to the Bank of Uganda (BoU) Quarterly Financial
Stability Review report was to safeguard financial stability and alleviate the
impact of the COVID-19 pandemic on the financial sector and economic growth.
The benefiting sectors from the credit relief include that of trade, real
estate, manufacturing and transport which were the hardest hit by the
pandemic.
The Central Bank says that the status of this measure as of the end of
September 2020 indicated that all banking institutions, except one which is yet
to receive any applications, have extended considerable credit relief to
borrowers affected by the pandemic thus far.
“The cumulative loans that have been granted credit relief between April 2020
and end-September 2020 amount to Shillings
6.7 trillion, which is 40 percent of the banking
sector’s loan portfolio. The acceptance rate for applications is high at
97.4 percent,” reads part of the report.
The report also indicates that after accounting for credit relief that has
matured or expired as well as new applications restructured during the
month, the stock of restructured loans as at end of
September 2020 was Shillings 5.2 trillion, equivalent
to 31.5 percent of gross loans.
“Loans that have been restructured for a second time increased by
60.8 percent from Shillings 264.1 billion in August
2020 to Shillings 424.9 billion in September 2020, and
these account for 8.1 percent of all restructured
loans. This trend suggests that the financial condition of some
borrowers that received credit relief remains distressed,” further reads the
report.
As a remedy for concerns regarding the potential impact of past due to
restructured loans on banks’ performance, the Central Bank has taken
measures including stress tests conducted to determine the adequacy of banking
institutions’ provisions and capital buffers to absorb the shock if all the
past-due loans were to deteriorate.
The report indicates that the number of loans under credit relief that are
past-due by at least one monthly repayment increased
from Shillings 134.1billion as at end of July
2020 to Shillings 763.2 billion at end of September 2020.
The Central Bank commits to continue to engage banking institutions
to ensure that they proactively recognize
and prudently provide for potential loan
losses and maintain adequate capital and
liquidity buffers to absorb the shock.
In October 2020, Bank of Uganda embarked on a countrywide publicity campaign to
enhance awareness of the credit relief program, in
order to ensure that borrowers who are
still distressed can apply for and access a second restructuring, which is
allowed under the BoU credit relief guidelines.
