BOU report: Businesses shun loans in third quarter of year

Many SMEs in Kampala decided not to take up loans in the third quarter of this year due to a number of factors.

The number of local businesses applying for loans in third quarter of this financial year declined, a credit survey report from Uganda’s central bank has revealed.

The findings indicate that 10.2 percent of the respondents applied for a loan in the third quarter of this year, a decrease of 8 percent in effective credit demand compared with the share reported in the second quarter of the year.

The survey which was aimed at assessing the credit demand conditions and drivers during the quarter to September and outlook for the period to December 2023, was conducted from 28th August to 15th September 2023.

It received a total of 98 responses out of the 115 business entities that were purposively targeted from the Kampala Metropolitan area.

The report notes that the “decrease in loan applications is an indication of the lingering effects of the global tight monetary policy implemented since June 2022 that has led elevated lending rates.”

Many local businesses were badly hit by the Covid-19 pandemic and their efforts to recover where further hampered by expensive credit.

Indeed, many respondents cited high interest rates, low levels of business activity and existing debt service obligations as major reasons why they are reluctant to take up loans.

From the survey, the sectors that recorded growth in loan applications were; wholesale and retail, accommodation, construction, agriculture and ICT. Those that registered a noticeable decline in loan applications were: education, manufacturing, finance and insurance, real estate and transportation.

All the surveyed businesses that took out loans in the quarter, the report notes, opted for commercial banks.

The central bank attributes this to the fact that commercial banks are in position to mobilize deposits from the public at low rates, have access to international markets, have large branch network, have access to credit reference database, and have large capital base.

During the period under survey, there were no recorded borrowings from Credit Institutions (CIs), Microfinance Deposit Taking Institutions (MDIs) and the other financial corporations (OFCs) comprising of Savings and Credit Cooperatives (SACCOs), Non-deposit taking microfinance institutions (MFIs) and money lenders .

The central bank remains hopeful that the credit situation will change for the better as the year comes to an end.

“The outlook for the next three months to December 2023, suggests gradual recovery of loan application with 17.3 percent of the entities indicating that they intend to borrow, a decline from the 25.3 percent expectation in the three months to September 2023. Overall, there are expectations for increased private sector borrowings as the inflationary pressures recedes and the central bank lowers the CBR,” the bank notes.

Tagged: Bank of Uganda CEO Credit loans

Source: CEO East Africa

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