BOU maintains credit relief for borrowers as COVID-19 effects persist

Kampala, Uganda |  THE INDEPENDENT  |  The Bank of Uganda has extended for six months effective April 1, 2021 the Credit Relief Measures that the banking industry offered their borrowers to help them overcome the impacts of the Coronavirus (COVID-19) pandemic on the economy.

The Bank will also extend its financial support to financial institutions that may be in distress.   

In April 2020, Bank of Uganda (BOU) put in place Credit Relief Measures aimed at maintaining Financial Stability, and reducing the Economic Impact of COVID-19, especially due to the national lockdown. 

This came amidst fears that the private sector would not be able to pay back the loans under the then agreed terms and conditions as business activities declined, some to a complete halt. Guidelines were also issued to Commercial Banks, Credit Institutions and Microfinance Deposit-taking Institutions (MDIs) on how to apply the measures. 

The regulator, the BOU allowed the regulated financial institutions to restructure any loan affected by the COVID-19 pandemic as long as this is done within one-year effective April 1 2020. 

Within this period, borrowers are eligible to have their loans restructured or updated for up to two times, and any further restructuring would be applied for and approved by BOU. 

However, any credit relief granted is given at the discretion of the institution. As the impact of the pandemic lag, the BOU has found it necessary to continue with the measures.   

“BOU will extend for six months effective from 1st April 2021 the Credit Relief Measures (CRM) and also maintain the COVID-19 Liquidity Assistance Program (CLAP) to supervised financial institutions.

BOU will review CLAP from time to time as the pandemic evolves to ensure viability of solvent supervised financial institutions that may come under liquidity stress during the pandemic and to support credit extension”, said Deputy Governor, Michael Atingi-Ego. Experts say it was only prudent for the BOU to extend the relief measures.   

“Somewhat predictably, it has taken the decision to extend COVID credit relief measures for 6 months from April 1st, when the extraordinary measures were otherwise due to come to an end,” said the Standard Chartered Bank East Africa Head of Research, Razia Khan.   

“The market implications of this decision are likely minimal, as a ‘hold’ in interest rates was broadly expected. We expect the UGX to continue to be supported by healthy portfolio investor inflows, with fiscal risks unlikely to be seen as overriding,” says Khan.

The Bank says that while there is some economic recovery generally since the since the beginning of the financial year in July, it is happening at an uneven pace as social distancing measures continue to affect certain activities in the service sector.   

The main affected sectors remain education, hospitality, and tourism.

Hope is pegged on how vaccines will be rolled out worldwide.

“The medium-term economic outlook continues to be highly conditional on the timeline of the world-wide vaccines rollout and the course of the virus and its new variants.” Dr Michael Atingi-Ego added.   

But in the Monetary Policy Statement issued Monday, the Deputy Governor, Dr Michael Atingi-Ego says that towards the end of the year 2020, the economy slowed down compared to the earlier months immediately following the easing of the lockdown.  

The bank says the economy grew by about 2.6% in the quarter ended December, down from a growth of 9.2% in the earlier quarter ended September 2020.   

This financial year’s growth is expected to rise to between 3.0% and 3.5% and increase to between 4 and 4.5% next financial year. This is pegged on the expected availability of a vaccine in Uganda and her trading partners, a development that would boost Uganda’s exports and the tourism sector, as well as ease the uncertainty by foreign investors, according to Dr Atingi-Ego.     

Meanwhile, the Bank has decided to maintain the Central Bank Rate, its basis for influencing the lending rates at a low 7%, in a bid to encourage further reductions in commercial interest rates and boost credit demand.

The Interest rates have remained high despite the BOU lowering the rate, with an average interest rate by commercial banks at 18% per annum.

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