Lending rates edge up to 19.9 per cent

Friday April 23 2021
finance01 pix

Customers in a banking hall. As the economy becomes volatile, commercial banks have also adjusted their lending rates to cushion themselves from risks. FILE PHOTO


Interest rates for both shilling and dollar-denominated loans edged in February, according to data from the Ministry of Finance.

This was contrary to a stable Central Bank Rate that the Central Bank has maintained at 7 per cent since December.

Interest rates on shilling-denominated loans rose to an industry average of 19.9 per cent during the period from 17.4 per cent in January, which represented a 2.2 percentage rise while those on foreign currency loans edged up to an average of 5.3 per cent from 4.7 per cent.

However, the Ministry of Finance Performance of the Economy Report for March, noted the spike was a market correction factor, following a dip during December 2020 and January.

“The dip resulted from significant corporate sector activities in the credit markets which had a significant bearing on average lending rates during the two months,” the report said.

The report also noted that the shilling had in March faced appreciation pressures against major currencies but remained relatively stable, trading at an average of Shs3,662.87 against a dollar compared to Shs3,667.32 in February.


During the period, the report noted, the shilling had appreciated by 0.1 per cent against the dollar and 0.1 per cent and 1.8 per cent against the pound sterling and euro, respectively.

This was attributed to significant foreign exchange inflows from exports and offshore investments in securities, amidst subdued demand.

The report also noted that during February, the stock of outstanding private sector credit declined for the first time since August 2020, falling to Shs17.896 trillion, which was slightly lower (by 0.1%) than the Shs17.911 trillion in January.

During the period, the report noted, there was an improvement in loan repayment supported by improvements in the economy, which have enabled borrowers to service and pay back outstanding loan obligations.

The report also indicated an increase in the value of loans extended to customers in February to Shs748.06b from Shs533.8b in January, following a resumption of normal operations by lending institutions.  

During the period, personal and household loans accounted for most of the credit extended in with at 33 per cent of the Shs748b going to the sector.

Trade accounted for 22 per cent while agriculture accounted for 13 per cent. Building, mortgage, construction and real estate, accounted for 12 per cent.

Domestic borrowing        
During February, government borrowed Shs 901.21b from the domestic market through two T-Bill auctions and one T-Bond auction. At least Shs440.11b was raised from T-Bills while Shs461.11b came from T-bonds.

Securities worth Shs479.09b were issued for refinancing of maturing debt while at the same time Shs422.12b went towards financing other items in the budget.