Agriculture sector registeres highest lending rate

The Bank of Uganda's annual report for the 2023/24 financial year has shed light on lending rates across various sectors. Agriculture topped the list with a lending rate of 21.5 per cent, primarily due to high risks associated with the sector.

"The Transport and Communications sector enjoyed the lowest interest rates at 13.2 per cent, attributable to the predominance of prime borrowers within this sector," the report states.

Building, mortgages, construction, and real estate followed closely with a lending rate of 20.1 per cent, while personal and household loans stood at 18.6 per cent. The manufacturing sector's average lending rate was 16.9 per cent, and trade recorded a rate of 17.3 per cent.

According to the Bank of Uganda, varying interest rates across sectors can be attributed to differences in risk profiles.

Private sector credit growth slows

The report also revealed that private sector credit growth slowed to 7.7 per cent in FY 2023/24, down from 9.9 per cent in FY 2022/23. This slowdown was mainly due to lackluster demand for credit and cautious lending by financial institutions.

"The slowdown was primarily due to a decrease in shilling-denominated lending, which grew by 9.6 per cent, down from 12.1 per cent in the previous fiscal year. Similarly, the average annual growth in foreign currency-denominated loans declined to 3.2 per cent from 4.7 per cent in the previous year," the Bank of Uganda explained.

Lending and deposit rates

Commercial banks' weighted average lending rates for shilling-denominated loans decreased to 17.89 per cent from 18.56 per cent in the previous year. However, lending rates rose in the second half of the financial year due to tightened monetary policy.

Time deposit rates gradually increased during FY 2023/24, averaging 10.78 per cent, higher than the 10.64 per cent registered in the previous financial year.

"The spread between lending and time deposit rates narrowed to 7.11 per cent in FY2023/24 compared to 7.92 per cent in FY 2022/23," the Bank of Uganda noted.

Digital financial services on the rise

Deputy Governor Dr. Michael Atiingi-Ego highlighted significant progress in promoting financial inclusion and digital financial services.

"The value of mobile money transactions surged to Shs253 trillion, a 32 per cent year-on-year growth, demonstrating the success of our efforts to promote a cashless economy and enhance financial inclusion," he said.

This growth underscores the increasing reliance on mobile platforms for financial services and demonstrates the success of efforts to promote financial inclusion.

Key highlights:

- Agriculture sector lending rate: 21.5 per cent
- Transport and Communications sector lending rate: 13.2 per cent
- Private sector credit growth: 7.7 per cent in FY 2023/24
- Commercial banks' weighted average lending rates for shilling-denominated loans: 17.89 per cent
- Time deposit rates: 10.78 per cent
- Mobile money transactions: Shs253 trillion, up 32 per cent year-on-year