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High lending rates to last much longer in Uganda

The Uganda average prime lending rates, the lowest borrowing rates, having remained at 22.3% for the last four months. Central Bank officials say commercial bank lending rates may remain this way much longer.

Commercial bank rates have slightly dropped from an average 23% recorded more than 10 months ago, despite sharper decline in the benchmark Central Bank Rate (CBR) to 11.5% from 23%. The level of non-performing loans is still above 4%, slightly down from 4.9% in the year 2012, from barely 2% in the year 2011.

Experts say commercial bank lending interest rates will remain sticky downwards until both domestic and global economic environments improve.

Dr. Adam Mugume, the Executive Director for Research at the Bank of Uganda says under the current monetary policy framework, interest rates are ‘operating targets’. “When the CBR is changed, it has an effect on all interest rates, starting with interbank rates, yields on government securities, time deposit rates and eventually lending interest rates,” he said.

“Lending interest rates in addition to the monetary policy stance are determined by a host of factors such as perceived riskiness of the borrower and the state of the economy”. “Commercial banks lending interest rates will remain sticky down wards until both domestic and global economic environments improve”.

Before that starts to happen, however, Dr. Kasekende says commercial banks should start using the benchmark CBR as the greatest factor in setting their interest rates for loans.

The New Vision Newspaper

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