Centenary Bank MD, Fabian Kasi says as the risk levels increase, the banks have no option but to be more cautious about lending, but also advises businesses to also consider risk a major component of their business planning.
The banking industry is now pushing the government to institute more measures that will help the private sector, especially startups, financially, because the banks themselves are becoming more sensitive to risk.
The Managing Director, Centenary Bank Uganda, Fabian Kasi, says it is currently very hard for a commercial bank to lend to someone who wants to start a business.
In this case, the private sector growth will remain subdued for a longer time because of declining accessibility to credit.
The situation at the banks has been influenced by the Covid-19 pandemic which has seen many businesses either close or cut down activities, and as a result find it harder to repay loans.
The banking sector has since April last year, been urged to soften their stance on borrowers regarding interest, repayment and penalties on defaulters, as this would make it worse for the private sector.
Kasi says as the risk levels increase, the banks have no option but to be more cautious about lending, but also advises businesses to also consider risk a major component of their business planning.
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According to the bankers, more than 70 percent of the outstanding private sector loans were restructured, including extending the repayment periods, adjusting the interest rates and suspending penalties among others, under guidance of the Bank of Uganda.
As a result, according to financial analysts, some borrowers have been able to survive despite having loans with banks.
Crystal Kabajwara, a Senior Manager, Tax at PricewaterhouseCoopers (PwC) says the measures taken by the banks have had an impact on how businesses deal with their debtors, allowing for repayment period extensions.
Speaking at the URA public dialogue dubbed “Bomba ya Buainess Summit”, Kabajwara expressed the need by the banks to extend the credit relief measure t through next year, saying Covid 19 and its effects are still around for an uncertain period.
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In August this year, Bank of Uganda said it would extend the measures on a case-by-case basis for another 12 months, basing on the extent to which a sector was hit.
BOU Executive Director Research, Dr Adam Mugume said only businesses in highly affected sectors would benefit from the 12-month extension of the relief measures, adding that even these will be handled on a case-by-case basis.
This was aimed at preventing laxity among the private sector to pay back even when they are able.
Kasi also says that unfortunately, public calls for credit cancellation for the most distressed sectors, is impossible because the banks do not own the money that they use to lend.
“As an individual, before you come for a loan as a means of financing your business, look at other options like savings. We don’t experiment with people's money.
We first understand your business to assess your character before we give you a loan."
He adds they are in talks with individual borrowers from distressed sectors like education, whose businesses have been closed for almost two years now.
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The government and URA also came into the spotlight over the tax regime which is highly unpredictable. PwC’s Kabajwara says it is hard for the private sector to operate not sure for how long the current tax regime will be stable before tax rates are increased or new taxes introduced.
She says investors need a stable and predictable business environment, calling for taxes to be adjusted at least every after three years, especially now that they have to deal with effects of the pandemic, among other factors..
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For her part, the Private Sector Foundation Uganda Head of Skills Development, Ruth Biyinzika Musoke says it is time for Ugandan investors to start adjusting on the way they do business, abandoning the traditional practices.
Giving the example of schools, she says that with Covid-19, it is no longer advisable to operate businesses using old practices, urging that diversification is one of the ways for a business to survive.
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URA Commissioner Customs Abel Kagumire says they have put in place measures to ease life for tax payers especially during the time of crisis, including voluntary declaration where they are not penalised for having defaulted.
The tax body has also introduced instalment taxpayment to enable traders clear their goods slowly, according to Kagumire.