Banks have resorted to investing in assets as a mitigation to move away from lending money due to the high rate of non-performing loans, the chief executive officer of Uganda Institute of Banking and Financial Services (UIBFS), has said.
According to a research commissioned by UIBFS, banks are shifting their business models from lending to investing in assets.
However, Mr Anthony Mulindwa, the chief executive officer of UIBFS, said this was only a short term plan as banks try to reorganise themselves with many still struggling to shade off high rates of non-performing loans.
“Banks are trying to reorganise themselves to engage the market better. I don’t think it will take long because the business of banks is to transact with people,” he said.
Mr Mulindwa made the remarks at a stakeholders’ meeting organised by UIBFS where banks were advised to be more vigilant in regard to risk assessment.
According to data from Bank of Uganda, non-performing loans had by February last year increased to 10.5 per from 7.7 per cent, making it the highest rate in more than a decade. Many banks have had to write off huge sums of money as a result of non-performing loans.
For instance, until when it was taken over, Crane Bank had been struggling to absorb a number of large non-performing loans, drawn by the bank’s high profile customers.
To date a number of such loans have not been settled.
A loan is declared non-performing after the debtor has not made scheduled payments for at least 90 days. In other wards it is either in default or close to being in default.