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KIU Business Desk: Banks Reject Loan Applications Worth Over 700 Billion in July 2020

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By Wandera Stephen 

KIU, Main Campus – Commercial banks in Uganda rejected loan applications worth over 700 billion shillings in July 2020, according to the State of the Economy September 2020 Report released by the Bank of Uganda (BoU) yesterday, September 23.

“The number and value of loan applications and approvals declined in the quarter to July 2020 as business activity slowed down (and) non-performing loans increased,” reads part of the report.

“In July 2020, 684,074 loan applications worth UGX 1,424 billion were received and 681,044 loan approvals worth UGX 711 billion were made. The significant discrepancy between loan applications and approvals reflects increased risk aversion towards borrowers amidst rising NPLs (Non-performing Loans),” the report adds.

This means that loan requests worth 713 billion shillings were rejected as a result of slowing down in business activity, even as the government continues to open up the economy from the COVID-19 lockdown.

Additionally, the Bank of Uganda noted that month-on-month lending rates increased sharply in July 2020, to 20.9% from 19.3% in June 2020. The central bank attributes the increase in the lending rates to a rise in unsecured lending to individuals and households as well as lending to the riskier sectors such as Agriculture.

The report also revealed that due to fear of risks associated with the COVID-19 pandemic, commercial banks were hesitant to lending to major sectors of the economy like agriculture, manufacturing, trade, personal & household and Building, mortgage, construction and real estate sectors - whose lending declined to 9.0%, 0.6%, 3.4%, 5.8% and 12.7% respectively in the three months to July 2020.

Bank of Uganda warned that the weak credit disbursement to major economic sectors poses challenges for private investment and consumption and may further constrain economic growth prospects.

Picture credit: Bank of Uganda