Ugandan MPs urge central bank to limit foreign lending

Kampala – Ugandan MPs have urged the country’s central bank to ensure that foreign currency lending is limited to foreign currency income earners.

Kampala – Ugandan MPs have urged the country’s central bank to ensure that foreign currency lending is limited to foreign currency income earners.

They made the appeal during a House sitting to adopt the report of the committee on national economy over the performance of the economy during the financial year 2012/13.

Legislators noted that large corporations and rich individuals benefiting from foreign currency lending, account for nearly all the increase in private sector credit growth, which they said had resulted in some banks breaching the 80 per cent limit.

They added that although the banking sector remains solvent, liquid and profitable, non-performing loans were increasing in the banking system, and asked Bank of Uganda to strengthen its regulation of the financial sector to reduce the non-performing loans.

“Moreover, with nearly new credit over the financial year extended in foreign currency, indirect credit risk is likely to increase in the periods ahead,” the chairperson of the national economy committee, Stephen Mukitale, added.

He stressed that weak economic performance, especially during the financial year 2011/12, had tended to increase non-performing loans, thus weakening the associated provisions and putting banks’ earnings and balance sheets under pressure.

“Consequently, deteriorating balance sheet positions has caused banks to stifle credit supply, which has a circular effect to further reinforce weak economic activity,” Mukitale told the House.

Legislators explained that the decision to recapitalise the central bank is important, adding that follow-up legal arrangements are needed to bring the central bank capital in line with its liabilities, guarantee independence of policy instruments, end central bank financing of the budget, and in general avoid any threat to fiscal dominance.

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