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.