Ugandan banks experience rapid rise in non-performing loans

The Bank of Uganda has recently called upon commercial banks and other supervised financial institutions to eliminate charges for early loan repayment due to the surge in non-performing loans (NPLs) across the country. Wilson Manishimwe, a Policy Analyst at Corporate Image Limited, shed light on the growing concern during a recent interview with CNBC Africa. According to Manishimwe, non-performing loans are on the rise in Uganda, signaling a significant challenge for the banking sector. The Bank of Uganda's latest report revealed an increase of 0.7% in the non-performing loan portfolio, in contrast to the 4.7% growth in loans. This disparity underscores the pressing issue at hand as NPLs continue to outpace the growth of loans. Despite banks reporting substantial profits, the mounting NPLs pose a substantial obstacle that cannot be ignored. Manishimwe emphasized the need for measures to address this escalating crisis. In response to the alarming trend, the Bank of Uganda issued a directive to halt charges on early loan repayments. This move is aimed at safeguarding the interests of bank customers and fostering timely repayment practices. By encouraging borrowers to settle their loans promptly, the initiative is anticipated to drive down the percentage of non-performing loans and promote financial stability. While the impact of this directive remains to be seen, Manishimwe expressed optimism that it will incentivize more individuals and organizations to access loans and fulfill their repayment obligations. Despite the current robust profits reported by banks, the presence of non-performing loans could impede their full potential. Manishimwe asserted that a reduction in NPLs would not only bolster profitability but also fortify the overall stability of the financial sector. Therefore, addressing the issue of non-performing loans is imperative for sustaining a healthy financial environment in Uganda.