Businesses with bank loans are in dilemma as the loan rescheduling window introduced last April by Bank of Uganda (BoU) to shield them from impact of Covid-19 pandemic expired on September 30.

Faced with a vulnerable financial sector incapable of writing off several non-performing loans, the BoU opted for a temporary loan rescheduling programme for distressed borrowers.

While the initial loan restructuring period was set at 12 months, it was extended for another six months in April on account of limited progress achieved by commercial banks and affected borrowers engaged in loan rescheduling activities coupled with slow economic recovery momentum experienced in the aftermath of this year’s General Election held in January.

“Credit relief measures expired on September 30. The rationale for proposed capital increment is about enabling Supervised Financial Institutions (SFIs) survive the near and long term impact of Covid-related lockdowns and heightened credit risk in the economy,” said Dr Twinemanzi Tumubweine, BoU’s executive director for supervision.

Whereas the BoU appears reluctant to extend the loan restructuring programme, the third Covid-19 wave of May and economic lockdown between June and July complicated matters for many businesses in the education, leisure, hospitality and transport sectors.

Despite a reduction in daily Covid cases, falling consumer demand affected service businesses that had suffered financial distress for several months.

“I would suggest an extension of six months to allow those sectors prepare themselves better for strong economic recovery,” said Sam Mwogeza, executive director for High Net worth clients at Stanbic Bank Uganda.

This is a sentiment shared by Dr Fred Muhumuza, an economist and director at Bank of Baroda Uganda Ltd, who says an extension should factor in the potential effect of mass Covid-19 vaccination on the population and its vulnerability towards future infection waves, recovery momentum among schools after the January reopening date and parents’ ability to settle school fees obligations.

“Although the loan restructuring period has reduced debt repayment pressures felt by some borrowers, there are others that will face inevitable foreclosure actions taken by commercial banks. Another eight months might be useful for easing pain among the most distressed borrowers but BOU’s thinking on this matter remains unclear,” said Dr Muhumuza.

The total value of applications for loan restructuring in Uganda’s financial sector, mainly driven by commercial banks, amounted to Ush7.4 trillion ($2.07 billion) between April 2020 and June 2021, equivalent to 24,000 loan facilities. The value approved stood at Ush7 trillion ($1.96 billion) by end of June 2021, according to BoU data.