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Private sector credit grew 1.6 percent in September 2023, says new report

KAMPALA, November 28, 2023 – The stock of total outstanding private sector credit in Uganda grew by 1.6 percent to Shs 21.17 trillion in September 2023 from Shs 20.84trn in August 2023, with increases recorded for both shillings and foreign currency denominated credit, according to the Performance of the Economy Report October 2023.

According to the report published by the Ministry of Finance, both shillings and foreign currency-denominated credit rose to Shs 14.87trn and Shs 6.3trn in September 2023 from Shs 14.77trn and Shs 6.07trn, respectively in August 2023.

“This was in part due to the continued improvement in economic activity and positive sentiments about business conditions as shown by the high frequency in Composite Index of Economic Activity [CIEA], Business Tendency Index [BTI], Purchasing Managers’ Index [PMI].”

Credit extensions

The report says the value of credit approved for disbursement in September 2023 amounted to Shs 1,09trn, a Shs 3.1 billion increase from Shs 1.09trn the previous month. “This represents an approval rate of 53.4 percent in comparison to the rate of 64.7 percent in August 2023, partly due to higher risk averseness by commercial banks following the rise in provisioning for bad debts,” says the report.

In September 2023, personal and household Loans accounted for the largest share of credit approved at 30.4 percent (Shs 331.3bln). Other notable recipients of credit included trade at Shs. 224.4bln [20.6 percent], building, mortgage, construction and real estate at Shs. 165.8bln [15.2 percent], business, community, social and other Services at Shs 147.6bln [13.5 percent], and agriculture at Shs 115.8bln [10.6 percent]. These five sectors constituted 90.3 percent of all the credit extended to the private sector during the month.

Lending rates

In September, 2023 the weighted average commercial bank lending rate increased to 18.95 percent compared to 18.40 percent recorded for the previous month. In addition, the lending rate for foreign currency-denominated credit also increased to 9.00 percent in September 2023, compared to 8.57 percent the previous month. According to the report, this was due to the rise in the risk averseness of commercial banks following the rise in the provisioning for bad debts during the period under review.

CBR maintained

Bank of Uganda maintained its policy rate at 9.5 percent in October 2023, for the third consecutive month. According to the report, this was in response to a reduction in inflationary pressures as reflected by a decline in annual headline inflation to 2.4 in October 2023 from 2.7 percent in September 2023. “Annual inflation has been declining since February 2023, thereby contributing to the low inflation outlook, which influences the decision of setting the monetary policy rate.”

Government securities

There were two treasury bill auctions, one treasury bond auction and one bond switch operation in the domestic primary market in October 2023, from which a total of Shs 1.14 trn was raised. Shs 788.72bln was raised from treasury bills while Shs 348.95bln was from the treasury bond issuance.

Shs 686.14BLn of the total amount raised went towards refinancing maturing domestic debt in the month, while the remainder of Shs 451.53BLn was used for financing other items in the budget, says the report.

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