Interest rates drop by 0.4%

Kampala
Interest rate charges on the Shilling-denominated loans have reduced by 0.4 per cent following the increase of commercial bank lending to the private sector, the central bank has said.

Bank of Uganda said commercial banks’ weighted average lending rates on loans dropped to 19.6 per cent in January 2010 from 20 per cent in the previous month.

For a long time now, the reluctance of most financial institutions to cut commercial lending rates has been a concern for the International Monetary Fund, especially in its mission review on the Policy Support Instrument.

Loan expansion
However, the 2009 financial results of most banks indicate a busy expansion on their loan books as they focus on increasing retail lending to the private sector to capture larger credit markets.

The central bank said domestic money market competition has increased due to the introduction of the Credit Reference Bureau that is expected to reduce risk in the credit market as a result of loan default and related costs associated administration cost for the private sector.

Whereas there is high optimism for the decrease on the shilling dominated loans the central bank said the weighted average lending for the foreign currency denominated loans rose to 11.4 per cent during January compared to the 10.1 per cent in December 2009.

Ms Mary Katarikawe, the director of research at Bank of Uganda, said there has been an increased demand for foreign currency loans in the country, which has led to a slight increase in the interest charges.

In the same period under review the central bank recorded a deceleration in monetary aggregates, which saw money supply contract between December 2009 and January 2010.