Two weeks ago, someone leaked a list of businesses that were being considered for bailout financing by the government of Uganda. The businesses were drawn from different sectors and included a once famous school, a once famous café, a discotheque – yes that is right and many enterprises in the steel sector, among others.
What was common with the businesses was that they all had non-performing loans with different financial institutions. Some of the businesses were still open although struggling while a few had completely ceased to operate.
Behind every bad loan, there is a bleeding bank. When a borrower does not service a loan for 90 days, the lender is required to make a loss provision of 20 per cent. If the loan does not perform for 180 days, the loss provision increases to 50 per cent and after 360 days, the bank has to write off the whole loan. How much of the total bailout amount of Shs1.3 trillion is already provisioned 100 per cent? Your guess is as good as mine. May God help the banking sector.
Inside or outside the struggling businesses and bleeding banks are worried suppliers and employees, people whose livelihood depends on the health of these entities.
A big part of the reason that many businesses are in distress is linked to the 2011 actions of the leaders and managers of the economy which caused inflation and interest rates to rise to unsafe levels. Between 2012 and 2015, so many smaller businesses have folded quietly without any chance of a bailout or dole out.
Banks need to ask why they are holding a lot of non-performing loans in their books; is it because of poor appraisal, poor structuring, poor loan monitoring or due to factors beyond the control of the bank?
It is high time we seriously ask why and how we got to this point of contriving a bailout in order to stop further spread of the disease. Careless actions on the part of both the government and private sector will only invite more trouble for the economy.
James Abola is a speaker, author and business and money coach. Email: james.abola@akamaiglobal.co.uk
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