Prime
Cost of loans rises
High lending rates have in effect impacted lending to the private sector. Photo / File
What you need to know:
- During the quarter to April, lending rates for shilling-denominated loans increased by 0.6 percent from 18.8 percent to 19.4 percent
Commercial bank lending rates increased in the quarter to April, signaling a continued difficult economic environment for the private sector that has persisted for more than a year.
During the quarter to April, Bank of Uganda indicated that lending rates for shilling-denominated loans increased by 0.6 percent from 18.8 percent to 19.4 percent while interest rates for foreign currency denominated loans slightly declined to 7.8 percent from 8 percent.
The increases, Bank of Uganda indicated were more pronounced for borrowers in manufacturing, trade, transport and communication, coming in a period in which the central Bank has maintained a tight policy stance, keeping the Central Bank Rate unchanged at 10 percent for over three months now.
The increase impacted private sector credit, which largely remained unchanged at 10 percent in the quarter to April, signalling continued existence of credit risk, which could have influenced a Shs277b drop in the value of private sector credit to Shs683b, which was lower to than the Shs960b registered in Match.
Total credit extensions for the three months to April, Bank of Uganda indicated declined to Shs4.62 trillion compared to Shs4.73 trillion extended in the quarter to January.
However, loan recoveries were sound increasing to Shs4.1 trillion from Shs4 trillion during the period, boosted by an increase in business confidence, which suggests a return to higher growth in economic activity.
Data also indicates that the Business Tendency Index stood at 57.6 points in May, which was at least 1.9 points above to how it was in April, supported by an improved assessment of business optimism in the near term.
The shilling
The Central Bank also indicated that whereas the shilling had experienced depreciation pressures, losing by 0.4 percent in April, it had reversed the trend that had resulted from continued offshore net-exits, increased in imports and outflows on account of increased investments abroad.
