Commercial banks increased the prime borrowing rate to an average of 20.39 percent in the three months to January from 19.86 percent in the three months to September 2022, the Bank of Uganda (BoU) has revealed in its recently published Monetary Policy Report for February 2023.
This was in response to the tightening financial conditions, the report says.
It adds that the lending rates on shilling loans increased in the three months to December 2022 to 18.77 percent from 17.02 percent in the three months to September 2022.
Similarly, the lending rates on foreign currency loans rose to 7.95 percent from 6.71 percent over the same period.
“Increases in shilling lending rates were observed across all major sectors of the economy, including agriculture, manufacturing, trade, personal, as well as transport and communication. Nonetheless, a moderate decline was observed for the housing sector,” the report says.
It adds that despite the increases in lending rates, the growth in private sector credit, net of valuation changes and capitalized interest increased to 9.02 percent in the three months to December 2022 from 7.77 percent in the three months to September 2022 driven largely by advances due to the Uganda Development Bank (UDB) and Savings, Credit and Cooperative Societies (SACCOS) as well as pe-contractual lines of credit.
Total private sector credit growth declined to 10.48 percent from 10.86 percent over the same period, largely dragged down by declines in foreign currency loans.
According to the report, Shilling loans grew by 13.43 percent in the three months to December 2022 from 11.07 percent observed in the three months to September 2022, while growth in foreign currency loans declined to 2.81 percent from 8.72 percent over the same period, driven partly by the appreciation of the Shilling against the hard currencies during the three months to December 2022.
“Total net extensions of credit increased in three months to December 2022 to Shs 1,000.06 billion from Shs -11.6 billion in the three months to September 2022. Loan recoveries, however, declined to Shs. 3,884.13 billion from Shs. 5,040.53 billion over the same period,” the report says, adding: “The value of new loans approved in the three months to December 2022 increased by Shs. 368 billion relative to the approvals made in the three months to September 2022, mainly driven by increased approvals of personal, agriculture, and manufacturing loans.”
This implies an approval rate in value terms for loan applications of 63.6 percent relative to 57.2 percent.
However, the number of loan applications and approvals declined by over 100,000 each, in the three months to December 2022 relative to the three months to September 2022, largely attributed to the personal and household loans sector reflecting the high lending rates and tightening borrowing conditions.