An unpredictable election season followed by a two-month budget window are factors hurting the performance of banks listed on the Uganda Securities Exchange, as experts warn of tougher times ahead.

The financial sector has gone through two sluggish quarters that have seen the share price of the three listed banks drop, and there is little hope expected in the half year earnings announcements expected to be made soon.

Stanbic Bank Uganda, Bank of Baroda Uganda (BOBU) and DFCU Ltd are publicly traded on the USE.

Industry players are blaming the election cycle, which started in early 2015 and ran until May 2016, for the poor performance of the economy.

Businesses, including banks, suffered through borrowers shying away from taking loans, reduced consumer spending, and postponement of expansion projects.

Many businesses were reluctant to seek new loans during the election period for fear of violence and concern over government spending. Similarly, consumers were saving cash in case of political unrest.

Though the election period ended during the second quarter of the year, the subsequent budget season that covers May and June led to a low borrowing appetite as consumers and businesses anticipated changes in tax rates and new budget allocations.

Faced with low credit demand since last year, industry executives expect single digit credit growth over the first six months of this year — average growth rates of more than 10 per cent were recorded in the same period in previous years — while deposits and profits are likely to have flat growth.

Private-sector credit grew by eight per cent at the end of March 2016, down from 17 per cent in March 2015, official data shows.

While some banks have cut their prime lending rates to 22-24 per cent in the past month, following a one per cent drop in the Central Bank Rate (CBR), average lending rates have remained too high for many borrowers.

A recent surge in non-performing loans (NPLs) has slowed credit growth as banks protect their cash from rising default costs and bad loan provisions.

Total industry NPLs increased from 5.3 per cent in December 2015 to around 6.5 per cent in March 2016, amidst growing default in the real estate, manufacturing and personal loan segments, Bank of Uganda findings reveal.

“Banks’ growth opportunities have been confined to the third quarter. Consumers are still nervous about high lending rates and seem reluctant to borrow,” said Sam Ntulume, the managing director of NC Bank Ltd, a subsidiary of NIC Bank of Kenya.

“Under tough economic conditions, it would be prudent for a bank to tighten credit standards and pursue innovative products like Bancassurance in order to stay afloat,” Mr Ntulume added.

Share prices of listed banks have posted a fairly dull performance since the last quarter. The DFCU share price fell to Ush775 ($0.23) in mid-July, and recovered to an average of Ush800 ($0.234) last week.

The BOBU share price dropped from an average of Ush150 ($0.044) between January and June 2016, but fell to Ush138 ($0.04) at the beginning of July.

Stanbic Bank Uganda’s share price has remained in the range of Ush26 ($0.008) to Ush27 ($0.0079) since May, reflecting modest performance under depressed market conditions.