The Central Bank of Uganda (BOU) has indicated that the quoted lending rates for commercial banks rose in the three months to April, averaging 20.8 percent, just 20 basis points (0.2 percent) above the reading in the three months to January 2024.
The details contained in the new BOU State of the Economy report shows that the weighted average shillings and foreign currency lending rates rose reflecting the increase of the Central Bank Rate (CBR) and the associated tight liquidity and financial conditions.
The weighted average shilling lending rate reversed the downward trend observed since last year, rising to 17.7 percent in the three months to April 2024 but remains below the level for the same period last year.
The lending rate on foreign currency-denominated loans continued to rise, reaching an average of 9.1 percent about 130 basis points (1.3 percent) above the rate charged the same period a year back reflecting the tight domestic and global monetary conditions.
The rise in lending rates was most pronounced in the Agriculture, Manufacturing, Trade, and Housing sectors. A moderate decrease was observed in Personal loans, Transport and Communications Sectors.
“Overall, lending rates are expected to rise and remain elevated owing to tightening financial conditions amid the increasing government issuances of securities in the domestic market,” a statement in the report reads in part.
Private sector credit (PSC) remains subdued in part due to the tight monetary conditions and increasing domestic financing needs of the government crowding out the private sector.
Annualized average private sector credit growth in demand moderated to 7.8 percent in the three months to April 2024, down from 8.4 percent in the three months to January 2024.
BOU data shows that growth in demand for shilling-denominated loans at 9.4 percent remains weak and below historical trends. Similarly, foreign currency-denominated loans growth moderated to 3.8 percent from 6.4 percent over the same period.
Both gross credit extensions and recoveries declined in the three months to April 2024, but the decline in gross extensions was faster than the decline in gross recoveries, as banks increasingly cut back on renewing credit lines for borrowers.
Demand and supply of credit also remained on a downward trajectory with credit demand easing to UGX 5.1 trillion in the three months to April 2024 from UGX 5.3 trillion in the three months to January 2024 while credit supply remained flat at Shs. 3.4 trillion
Nevertheless, BOU indicates that government’s intervention programs, such as the Parish Development Model (PDM), Emyooga, etc, and other sources of financing such as fintech have complimented the banks’ credit to the private sector.
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