Uptake of credit relief as a result of Covid-19 related distress saw banks sign off at least Shs7.7 trillion for the period ended 2020, according to Bank of Uganda.
However, during the period, the Central Bank noted, at least applications worth Shs200b were not approved, which means they did not qualify to benefit from the credit relief scheme.
The Credit relief scheme was first implanted in April 2020 before it was extended for six months in April 2021.
The Shs7.7 trillion, according to the Bank of Uganda Annual report 2020, represented an approval rate of 97.6 per cent.
At least applications worth Shs7.9 trillion had been presented to supervised financial institutions during the period, according to the Central Bank.
In April 2020, Bank of Uganda granted exceptional permission to supervised financial institutions to provide a window in which loans would be restructured to provide borrowers who had been affected by Covid-19 some relief.
In the report, Bank of Uganda indicated at least 44.6 per cent of the total stock of loans in the banking sector had benefitted from the credit relief measures, whose application total gross of sector loans stood at 20 per cent in April 2020, before dropping to 2 per cent in December 2020.
The drop, which indicated that restructured loans had matured and resumed repayment as of December 2020, had reduced the stock of loans that were still under restructuring to Shs4.83 trillion or 29 per cent of gross loans. Construction, trade and agriculture registered the largest shares of credit relief during the period.
According to the guidelines issued by Bank of Uganda, extension of credit relief permitted supervised financial institutions to restructure credit facilities of distressed borrowers at least up to two times.
Consequently, following the slow recovery of the economy, in August 2020 loans that had been restructured for the second time had increased from Shs264.1b or 5.2 per cent to Shs.606.2b or 12.5 per cent by December 2020.
These, the report notes, were mostly in real estate, trade (including tourism and hospitality), community and social services (including education), which suggested that as of December 2020, the financial condition of some of the borrowers that received credit relief remained weak.
According to Bank of Uganda, as of December 2020, the restructured loans that were past due, that is, loans that had missed at least one installment, remained high on account of some borrowers’ credit relief maturing.
The increase in past-due restructured loans was likely driven by slow economic activity, coupled with the hesitation by some borrowers to continue to obtain credit relief.
Restructured loans that were past due during the period amounted to Shs.764.5b, which was equivalent to 15.2 per cent of the total stock of restructured loans.
Of this 20 per cent of Shs151.6b were classified as non-performing loans, while Shs612.8b were classified as ‘watch listed’, that is, they were still performing but had missed a payment by 1-89 days.