News and Views
City tycoons lose property to banks
Uganda’s economy was battered by a storm of bad news last year; from growing inflation, to the shilling losing to the US dollar. And as this unfolded, businessmen started to worry where this would end.
In response to what was seen as bad economic indicators, commercial banks increased interest rates on loans from 21 to 35 per cent. The level of bad loans increased, reaching an eight-year high of 3.4 per cent.
Tycoons who are losing their property to banks
Life was normal for Charles Kibuuka, (Not real names) – One of Kampala’s known commercial property owners. His businesses were doing well. He was looking forward to seeing one of his buildings change the sky-line on Kampala Road.
About seven years ago, it was difficult to get a bank loan from the 14 commercial banks. But tides have changed. The number of commercial institutions has doubled, compelling a competition for customers.
Because of this, Kibuuka was able to get Shs2 billion loan from one commercial bank to complete his magnificent commercial building.
Initially Kibuuka had invested Shs4 billion, which he used to acquire the prime plot and start the initial stages of the building. Life was good -he could afford to service his loans.
Getting a loan at 16-18 per cent interest was affordable and flexible. He could afford to have two or more loans from different banks-generally that is how life has been.
But 2011 was a dreadful year because the global financial and economic crisis hit Uganda’s economy. Inflation shot up, prices of commodities went wild, consumption went down and interest rates jumped. This was bad news for Kibuuka and other businessmen.
Kibuuka could not afford to meet his monthly loan repayments to the banks. His businesses were at risk. A few weeks ago, his fears came to pass as the bank took over his dream building along Kampala Road and placed the building in receivership.
Kibuuka’s case is one among several receiverships cases happening, as banks attempt to recover their money from non-performing loans.
Reliable information from the business circles in and around Kampala shows that a couple of shopping malls, arcades, homes and businesses have been put under receivership; others have been taken over already.
According to information from Bank of Uganda (BoU), non-performing loans have almost doubled.
Dr Adam Mugume, the BOU director research, says: “True, non-performing loans in banks have increased from 2.2 per cent as of December 2011 to about 3.4 per cent in March 2012.”
But he adds that by all standards, this is still better than international standards. EAC region average is about 12 per cent.
Experts attribute this crisis to the fierce competition among banks. Loans were offered to many people who previously may not have been qualified.
BoU records show that, loans have been growing since 2007, especially in mortgage, construction and real estate. “Loans to building, mortgage, construction and the real estate sector were Shs226.5b in December 2007, Shs586.6b in December 2008; Shs639.3 billion in December 2009 and Shs1065.2 billion in December 2010,” Mr Mugume adds.