Uganda’s central Bank,the Bank of Uganda (BoU) has threatened to cap the interest that commercial banks can charge borrowers, after the industry failed to reduce loan rates in response to cuts in benchmark rates, according to a letter from its governor.
The BoU cut its central (lending)rate by 200 basis points, to an all-time low of seven per cent between April and June, to help jump-start an economy battered by the impact of the coronavirus.
BoU governor, Emmanuel Tumusiime-Mutebile said in the letter, dated July 7, sent to all commercial banks that, he was “disheartened” to see that they had not acknowledged that reduction in rate, with cuts of their own.
Tumusime-Mutebile said the central bank was therefore considering invoking a law that allows it to determine maximum and minimum rates that “financial institutions may…impose on credit extended in any form.”
Neighbouring Kenya capped lending rates for its commercial banks on similar grounds in 2016, but scrapped the policy last November ,after it was blamed for stalling lending to businesses.
Tumusiime-Mutebile noted in his letter to the lenders that weighted average lending rate on loans rose to 18.8 per cent in May from 17.7 per cent in April, at a time when economic activity in Uganda was facing an unprecedented decline, due to lower demand, lower capital inflows, reduced productivity and mass unemployment.
Leading local players include affiliates of South Africa’s Standard Bank.
The World Bank projects growth of Uganda’s economy could slow to a mere 0.4 per cent this year from 5.6 per cent in 2019, due to the effects of the covid-19 pandemic.
with Reuters report
Popular Posts
