Commercial bank interest rates have dropped to an average of 19 per cent, according to details from Bank of Uganda.
Speaking at a press briefing in Kampala recently, Dr Adam Mugume, the Bank of Uganda director in charge of research, said the accommodative Central Bank Rate (CBR), which was maintained at 9 per cent for the month of February, has forced a decline in commercial bank lending rates by 4 per cent.
Commercial bank lending interest rates for shilling denominated loans, according to the Central Bank, have declined to 19 per cent in January from an average of 20.5 per cent in the quarter to September last year.
“The decline was mainly due to lower rates charged on loans in dominant sectors of trade, personal and household, transport and communication and manufacturing,” Mr Mugume said.
Investors in government papers have also been earning more than they earned in December due to an increase in interest rates for the period ended January.
Computed data indicates that the average annualised yields for 91, 182 and 364-day maturity [tenor] rose to 9.7 per cent, 11.42 per cent and 13.64 per cent, respectively in January.
This was an increase from 9.43 per cent, 11.33 per cent and 12.48 per cent, respectively in December.
“Yields on Treasury Bills and Bonds edged up in January despite the unchanged CBR [Central Bank Rate],” the central bank said in its highlights of the February Monetary Report.
Private sector credit stock increased by 1.8 per cent from Shs15.639 trillion in November to Shs15.927 trillion in December. Lending rates for dollar-denominated loans declined to 6.5 per cent from 7 per cent in quarter to September.
The Central Bank has maintained an accommodative monetary policy over the last year, which has seen increased activity in the money markets.
Dr Mugume also noted that private sector credit has grown in the period to between 12 per cent and 13 per cent.
Shilling-denominated loans grew by 15.6 per cent compared to 11.3 per cent in the quarter to September while foreign currency loans grew by 5.1 per cent compared to 2 per cent in the period.
Share of loans
The building, mortgage, construction and real estate sector took up the largest share of loans in the period under review.
It was followed by trade, which took up 13.4 per cent higher than 11.9 per cent in the previous quarter.
Personal and household loans grew to 9.4 per cent from 7.8 per cent supported by higher household spending, especially during the festive season.
The loans sector has also been boosted by the high rate of government borrowing, especially from the domestic market.
However, Dr Tumubweine Twinemanzi, the Bank of Uganda director in charge of supervision, recently told Daily Monitor that whereas the CBR has been under check for a long time, commercial bank interest rates continue to be high, which presents a mismatch.
“The gap between the CBR, commercial lending rate and government securities remains wide,” he said.