Uganda: Borrowers still bear the brunt with marginal reductions in interest rates
Analysts and bankers anticipate that the lending rate will fall further following cautious monetary policy easing which the central bank is currently undertaking.
The experts say this has seen the Bank of Uganda reducing the Central Bank Rate (CBR) amidst the falling inflation rate, which is likely to result into reduction in the lending rates for borrowers. Already, some commercial banks like Stanbic and Baroda have announced reduction in their prime lending rates.
Marketing Manager at Stanbic Bank Uganda, Ms Jacqueline Namara, said in an interview with Prosper that commercial lending rates are expected to trend downwards because the central bank is reducing the Central Bank Rate.
“We are hopeful that prime and commercial lending rate will fall during this financial year 2012/13. At Stanbic Bank we have reduced our prime rate by half a percentage point to 26.5 per cent from 27 per cent. However, this takes effect beginning next month [August],” she said.
Ms Namara said the reduction of a half percentage point could not take effect this month because the central bank announcement was made when the month had already started and as such it is not possible for reduction being by banks to take place in July.
Borrowers’ reprive still far
Looking ahead, Ms Namara forecast that a big percentage in reduction of both the prime and lending rates will be in the calendar year of 2013 and not 2012 because things are still tight in the credit market.
In the credit market, risk profiles is one of the determinants of interests charged on borrowers, Ms Namara said the risk profile of borrowers in Uganda’s credit will continue to be classified as high, medium and low risks meaning that borrowers who have risk profiles will continue to experience high interest rates.
Lately, the public has seen low advertisement by banks on the various products that the commercial banks were massively advertising before things became so tight. Ms Namara attributed this to the fact that banks have changed their strategies while products being offered and innovations in banks have not stopped.
“The various products that banks were offering are still going on. They are not widely being advertised because more emphasis is now put on partnerships with other service providers like the telecommunication companies in electronic banking,” she said.
She further explained that the way electronic banking system is done is in a collaborative manner which does not require lot advertising, adding that the only advertisement going on is above the line advertising.
Hinting on the non-performing loans which have increased banks, Ms Namara said it is not a surprise because borrowers are finding it difficult to repay the loans they have at high interest rates.
“Interest rates went up so fast but people’s income stayed fixe. This has impacted on regular loan repayments causing them to increase in form of non-performing loans,” she explained.
In an interview Prosper, Partner with Price Water Coppers (PWC) Mr Uthman Mayanja, said:
“With the inflation falling, we expect a pickup in growth of the private sector credit and a decline in commercial lending rates in the financial year 2012/13.”
Economy set to stabilise
Mr Mayanja is optimistic that economic activity will gain ground in the remaining half of the year. “The declining inflation has seen the central bank lowering Central Bank Rate this will result into low lending rates in future and the economic activities will pick up,” he said.
Whereas the level of non-performing loans have increased from two per cent to 3.40 per cent due to low repayments of loans by borrowers, Mr Mayanja said that this is still healthy for Uganda’s banking industry arguing because it is still below the international stands which requires the level of non-performing loan in banks to be at five per cent.
By MARTIN LUTHER OKETCH, Daily Monitor
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