Non-Performing Loans Drop, but Credit Extension Remains Subdued in Uganda

Uganda's banking sector has seen a decline in non-performing loans (NPLs), particularly in shilling-denominated loans, reflecting improved financial health. However, credit extension remains weak as banks continue to enforce strict lending conditions due to high interest rates. This has limited borrowing, particularly in sectors like agriculture, trade, and housing, which are vital for economic growth.

Despite the drop in NPLs, the demand for loans has not picked up significantly. Factors such as macroeconomic pressures and competition from government borrowing have further restricted private sector credit. This combination of reduced demand and limited supply of credit has slowed investment and growth across key economic sectors, indicating that more support may be required for businesses to recover fully.

While the banking sector stabilizes, high borrowing costs and reduced access to credit present challenges for Uganda’s private sector. Policymakers may need to address these barriers to ensure that credit extension picks up, enabling businesses and individuals to access the financial resources they need for growth and development.