Loans hit Shs15.9 trn in April as new report shows mixed results in Uganda’s financial sector

By George Mangula

The April 2020 Performance of Economy Report released Monday shows both positives and negatives for the various variables investigated in Uganda’s financial sector during the months of March and April, with private sector loans in the latter month amounting to Shs159 trillion.

For instance, in April, the report says the Ugandan Shilling depreciated by 0.3 percent against the US Dollar to an average midrate of Shs 3,785.7/US$ from Shs 3,772.9/US$ in March 2020.

The report attributes the depreciation of the Shilling largely to higher demand for the US dollar as offshore investors continued to exit the domestic market in speculation of tightened global financial market conditions due to the Coronavirus pandemic. The report says that was complemented with increased demand from the telecommunication sector and lower supply inflows of foreign currency, arising from reduced tourism during the COVID-19 lockdown. 

The report released monthly by the Finance Ministry, says the Shilling depreciated against Pound Sterling by 0.7 percent, trading at an average rate of Shs 4,698/GBP compared to Shs 4,665.5/GBP in March 2020.  However, the Shilling appreciated 1.4 percent against the Euro in the month compared to March 2020, as the Euro lost value globally. 

CBR eased

The Bank of Uganda eased its Central Bank Rate (CBR) in April 2020 to 8 percent from the 9 percent that had been maintained since October 2019. “The easing of monetary policy was in effort to support economic activity so as to minimise the impact of the COVID19 pandemic on the economy.” 

Average prime lending rate falls

Lending rates for credit eased in March 2020. Uganda’s average lending rate for the shilling denominated credit was 17.8 percent, down from 19.1 percent recorded in February 2020, while the average lending rate for the foreign currency denominated credit was reduced to 6.6 percent from 6.7 percent in February 2020. “The reduction in lending rates was partly a result of reduced demand for credit in the economy.”

Trading in Treasury-bills and Treasury bonds

Yields (interest rates) on Treasury-bills in April 2020 had mixed movements when compared to the previous month. The 182-day T-Bill yield edged upwards from 11.0 percent in March 2020 to 11.8 percent in April 2020; the 364-day T-Bill yield fell from 13.4 percent to 12.9 percent over the same period, while the 91-day T-Bill yield was unchanged at 9.6 percent. The reduction in the 364-day T-bill yield was due to its over subscription in the month.  

During April 2020, there were 2 T-Bill auctions and 1 T-Bond auction in the primary market. Shs 698.14 billion (at cost) was raised, of which Shs 468.52 billion was from T-Bills and Shs 229.63 billion was from T-bonds. Securities worth Shs 471.53 billion were issued for refinancing of maturing domestic debt while, Shs 226.61 billion went towards financing other activities in the budget.

According to the report, overall, the average bid to cover ratio for the month was 1.5, an increase from 1.3 recorded in March 2020. “This means that demand for Government securities was higher in April compared to March.” 

Private sector credit grows 1.3 percent

The report says the stock of outstanding private sector credit grew by 1.3 percent to Shs 15,940.6 billion in March 2020, marking a recovery from negative growth rates recorded for the last two months. The increase in stock was the result of an increase in both shilling denominated (by 1.0 percent) and foreign currency denominated (1.9 percent) credit, partly due to reduction in the lending rates.

Despite the reduction in economic activity in March 2020 due to the pandemic, credit extension to trade and manufacturing increased compared to February 2020.  The Trade sector accounted for the largest share of private sector credit extensions at 23.8 percent, followed by manufacturing and personal & household loans at 20.1 percent and 19. 6 percent respectively