Bank of Uganda (BOU) is concerned that much as the banking sector has posted impressive growth in the aggregate bank lending, loans towards the traded goods sector accounted for the smallest fraction, despite the sector being a key driver for economic development.
BOU governor Tumusiime Mutebile said the banking industry had achieved dramatic increase in the intermediation of funds, the extent to which banks convert deposits into loans to the corporate and household sectors. “At the end of 2000, commercial banks credit to the private sector was only 6% of GDP and banks only lent out 54% of their deposits base to the sector, but by the end of last year, it had risen to 80% and private sector credit to share of GDP had risen to 15%, meaning the private sector has risen fivefold in real terms since 2000,” he said.
The governor, however, noted that most of the lending is extended to the non-traded goods sectors of the economy, especially trade, construction, telecommunications and the household sectors.
“The traded goods sector such as agriculture and manufacturing received only 21% of the total bank credit to the private sector. This low share remains a concern because it is the growth and diversification of these sectors that can serve as principal drivers of technological upgrading and thus economic development over the long-term,” he said.
Mutebile’s message was contained in a speech read by his deputy Dr. Louis Kasekende during the annual Bankers Dinner at Sheraton Kampala Hotel.
The dinner was organised by the Uganda Institute of Bankers and Financial Services (UIB&FS). Mutebile was, however, happy with the growth of the mobile money services that have brought basic payment access within reach of millions of Ugandans without ready access to banks or bank account.
There are 8.9 million registered mobile money customers, more than quarter of the population. Mobile money transactions totaled sh11.7 trillion in 2012, a 211% increase over the total in 2011.
The IUB&FS council president and Stanbic Bank managing director, Philip Odera, appealed to bankers to guard against financial fraud, which is one of the leading threats to the progress of the banking industry.