Commercial banks are expected to maintain their price terms and conditions with a bias towards easing for average loans and prime borrowers and tightening for riskier loans in the quarter to December 2020, according to a quarterly bank lending survey conducted by the Statistics Department of Bank of Uganda.
“The survey results indicate that majority of the banks (77.0%) expect their lending rates to remain largely unchanged, 23.0 percent expect the rates to decrease, while no bank expects the rates to increase over the next quarter to December 2020,” the report reads in part.
The quarterly lending survey conducted by BoU’s Statistics Department captures past and prospective developments in the credit market. The survey is designed to complement existing quantitative data on credit and lending rates. The main objectives of the survey are to; Enhance BOU’s understanding of the lending behaviour and loan financing conditions among the deposit-taking institutions; and Capture leading information on credit developments.
The expected net easing of average loans and prime borrowers is based on; the low level of the CBR, low cost of funds and competition among banks for prime borrowers, the report adds.
“As regards non-price terms and conditions, banks expect to keep non-interest rate charges and maturity period largely unchanged with a bias towards easing for non-interest rate charges and tightening for maturity period,” the report says.
It adds that price terms and conditions for consumer credit are expected to tighten on a net basis for riskier loans, but ease for average loans and prime borrowers over the next three months to December 2020.
“Majority of the non-price terms and conditions are expected to remain unchanged with a bias towards tightening on a net basis, except for non-interest rate charges that are anticipated to ease,” the report reveals, adding: “On a net basis, banks expect the default rate on loans to both enterprises and households to increase in the three months to December 2020.”
The expected increase in default rate on loans to enterprises and households is mainly attributed to the negative impact of the Covid-19 pandemic on the business activities, employment and incomes of firms and households.