• Thu. Sep 28th, 2023

Commercial Bank Lending Rates Decline

UGANDA, Kampala | Real Muloodi News | Commercial bank lending rates maintained a downward trajectory in July, decreasing to a weighted average of 16.28 per cent, from 17 per cent in June.

According to the Ministry of Finance Performance of the Economy report for the period of July, this move is partly because of a decline in the ratio of non-performing loans to total gross loans, from 5.4 per cent in March to 4.8 per cent in June 2021.

The noted decline in the ratio of non-performing loans shows a decrease in the risk of default, hence reducing the Risk Premium, which serves the commercial bank interest rate.

According to the report, foreign currency-denominated lending rates also decreased from a weighted average of 6.05 per cent to 5.44 per cent over the same period.

The report noted that the general decrease was also because of the Bank of Uganda’s Monetary Policy stance that seeks to support economic growth recovery and ease access to private sector credit.

In April 2021, the Bank of Uganda reduced the Central Bank rate, which currently stands at 6.5 per cent, the lowest it has been since introducing the central bank’s current monetary policy framework in 2011.

However, the private sector’s response has remained slow as some commercial banks continue to proceed with caution.

Taking an example, during the period, the stock of outstanding private sector credit increased a little by 1.3 per cent to USh. 18.415 trillion in July from USh. 18.187 trillion in June. 

The report noted that whereas the growth was lower than the 2.2 per cent recorded in June, it was much higher than the average growth of -0.1 per cent realised from January to May.

In terms of credit extensions, the report noted the value of loans approved in July had reduced to USh. 661.39 billion, as compared to USh. 773.79 billion in June.

The report noted that the bulk of advances went to personal and household loans, which took 28.7 per cent, followed by trade at 19.3 per cent, manufacturing at 13.8 per cent, and agriculture at 13.5 per cent.

There was a decline in credit to construction by over 50 per cent, which is consistent with a decrease in growth of the construction sector highlighted by the Purchaser Managers Index.

The report noted that despite the decrease in lending rates and non-performing loans, credit extension remains subdued due to default risk.


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