Banks make slight reductions on lending rates

KAMPALA

A decision by the central bank to slightly lower its lending rates has prompted commercial banks to also marginally reduce their interest charges, keeping in line with their earlier promise that as long as the regulator relaxes the lending rates, they will follow suit.

Much as the change might not be significant enough to impress players in the private sector, some commercial banks have already reduced their prime lending rates following Bank of Uganda’s marginal reduction in the Central Bank Rate (CBR) on Wednesday.

Stanbic Bank, for instance, lowered its lending rate for shilling denominated loans from 29.5 per cent to 28.5 per cent, hinging the reduction to developments in the macroeconomic environment.

DFCU bank on the other hand also announced that it will effective next week reduce its prime lending rate from 27 to 25.5 per cent. Bank of Uganda reduced the Central Bank Rate (CBR), its benchmark lending rate, by one percentage point from 23 per cent to 22 per cent, indirectly instructing commercial banks to correspondingly lower their interest rates.

Interest rates shot up to record highs of close to 30 per cent in the last quarter of 2011, when BoU raised the CBR to 23 per cent in November, to battle inflation which hit 30.4 per cent in October 2011.

The move sought to make it too expensive for the public to access loans in order to slowdown growth in credit. The high interest rates are said to have hurt the operations of the business community as many projects are said to have been suspended due to lack of funds.

Traders also closed their businesses for three days, protesting the record high interest rates especially on old loans.

BoU Governor Emmanuel Tumusiime-Mutebile said during a media briefing on Wednesday that the fall in CBR is expected to ease pressure on the business community as far as paying high interests on loans is concerned. Other commercial banks are also expected to follow-suit in a few weeks’ time, as a way of responding to BoU’s move.

Ms Edigold Monday, the Bank of Africa managing director, said: “We made a commitment to our customers that once BoU reduces the CBR, we will also reduce our interest rate. We will study it and see how we can appropriately adjust the rate.”

The bank’s prime lending rate is currently 26 per cent.
KCB also indicated that it will soon review its rate and that the agreed-upon rate will be communicated to all clients.

Against trends
However, Centenary Bank managing director Fabian Kasi said the institution will not follow-suit with just a percentage point reduction in the CBR, saying at 23 per cent rate, the bank has the lowest prime lending rate in the market.

In a phone interview yesterday, the city traders’ spokesperson, Mr Isa Ssekitto, said they are looking forward to further reduction, arguing that it all starts and end with the Central Bank.

“What we have been saying all along is that the Central Bank has the power to reduce the lending rates. He has just proved us right,” Mr Ssekitto said.

He said much as the central bank move and the commercial banks gesture to reduce the rates is “somehow good” it does not address in totality the traders’ demand. “What we want is total elimination of useless bank charges and scrapping of interests rate on old loans. That is not what we got,” he said.