Commercial banks have increased their lending rates after the Central Bank increased the Central Bank Rate (CBR), a benchmark lending rate for banks. However, Ugandans are largely borrowing for consumption rather than production purposes.
The Bank of Uganda (BoU) increased the Central Bank Rate to 10% in October 2022, the highest since August 2019, from the 9%that was set in September 2022. This, according to BoU is aimed at controlling the rising inflation.
Inflation for the 12 months ended September 2022 was 10%, according to the Uganda Bureau of Statistics (UBOS), having risen steadily from less than 3% at the beginning of the year.
The high inflation has been largely attributed to the highly-price imports especially petroleum products, cooking oil and other foodstuffs, which later combined with crop failure in the country to push up the prices of locally produced commodities.
BoU’s target is to maintain the inflation rate at around 5%, but this is not likely, until 2024, according to predictions.
Over the last nine months of hiking the CBR, commercial banks have raised their lending rates by between 2% and 2.5% as a result, but this has not resulted in a fall in inflation.
According to Ministry of Finance’s performance of the economy monthly report for September 2022, commercial bank’s shilling denominated lending rates increased from a weighted average of 15.53% in July to a weighted average of 17.29% in August 2022.
“This movement was driven by a tight monetary stance by the central bank which has seen the CBR increase from 6.5% in April to 9.0% in September 2022, and higher rates on government paper,” the report obtained by Business Focus says.
On the other hand, the report says, foreign currency denominated lending rates decreased from a weighted average of 6.51% in July to a weighted average of 6.42% in August 2022.
The report says the stock of outstanding private sector credit grew from Shs20.05 billion in July 2022 to Shs20.11 billion in August 2022.
Of this, Shs13.51 billion was shilling denominated credit while Shs6.60 billion was foreign currency denominated credit. The stock grew by 0.4% compared to the 1.2% growth registered the previous month.
Credit Extensions
According to the report, the value of credit approved for disbursement in August 2022 amounted to Shs1.15 trillion, representing an approval rate of 56.9% against the Shs2.01 trillion applied for during the month.
This was slightly higher than the 55.2% approval rate recorded in July.
“Personal and household loans took the largest share of credit approved in August 2022 at 30.0% (Shs343.7 billion) followed by building, mortgage, construction and real estate at 17.5% (Shs201.1 billion). These two sectors alone accounted for almost half of the credit extended to the public during the month,” the report says.
Other notable sectors included trade at 16.5% (Shs189.6 billion), business, community, social & other services at 11.6% (Shs133.1 billion), manufacturing at 10.2% (Shs117.2 billion) then agriculture, manufacturing and transport at 10.4%, 10.2% and 1.7% respectively.
