UGANDA, Kampala | Real Muloodi News | A recent Bank of Uganda report has raised alarms about banks tightening their lending practices, particularly in sectors that are considered high-risk.
The implications of this tightening are far-reaching and suggest potential economic challenges on the horizon.
The Bank Lending Survey Report for the fourth quarter through June has brought to light a significant shift in lending behaviour among banks.
During this period, banks reportedly tightened their credit standards for businesses involved in building, mortgages, construction, and real estate.
Other sectors affected by this lending contraction included mining and quarrying, as well as transport and communication.
Conversely, lending standards were eased for most other sectors of the economy.
The report elaborated that the degree of credit standard tightening had increased compared to the previous quarter, except for personal loans and household and community, social, and other services, which saw an increase in lending standards.
Notably, lending standards were tightened by 39.4 per cent for building, mortgage, construction, and real estate.
Mining, community social services, and transport and communication experienced tightening as well, at 6.8 per cent and 5.1 per cent, respectively.
Bank of Uganda attributed the easing of lending standards in most sectors to increased demand for back-to-school expenses, a downward trend in inflation, particularly for food items, and a relatively stable business environment that encouraged trade activities.
Conversely, the tightening in the building, mortgage, and real estate sectors was primarily due to low property rates and declining occupancy levels.
Lending to the private sector continues to exhibit muted growth, with instances of stagnation and reduction.
For instance, according to the August performance of the economy report from the Ministry of Finance, the value of approved credit in July decreased slightly to USh1.12 trillion from USh1.18 trillion, representing a 61 per cent approval rate.
The trade received the lion’s share at 27.3 per cent, followed closely by personal and household loans at 26.5 per cent.
Business, community, social services, and other notable sectors received varying portions, with building, construction, and real estate accounting for 11.2 per cent.
The tightening of lending standards in the real estate sector and other related fields raises concerns about the broader implications for economic growth and stability.
It underscores the need for a balanced approach to credit allocation that considers both risk and potential opportunities to support sustainable economic development.
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