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BoU lists banks with lowest lending rates on loans

Kampala, Uganda | THE INDEPENDENT | Bank of Uganda has named commercial banks charged borrowers lowest rates between January and June 2020, effectively making them the cheapest lenders for debtors to run to.

Absa bank, Baroda, Bank of India, Citibank, Ecobank, NC Bank, Stanbic Bank, Standard Chartered Bank, United Bank of Africa, and Exim Bank kept their lending rates below industry average in the first six months of the year according to the Bank of Uganda’s monetary policy report for August 2020.

In January 2020, the industry average lending rates were at 20.06 percent and it had dropped to 17.2 percent in June. Citibank had the cheapest rate consistently below 15 percent. However, Citibank doesn’t lend to individual customers. Standard Chartered Bank and Stanbic bank also had lower rates than most peers.

Banks whose charges were expensive for borrowers include, ABC Capital, Bank of Africa, Cairo International, Dfcu bank, Equity, Finance Trust, Housing Finance Bank, KCB Uganda, and Opportunity Bank. Others are Centenary bank, Orient bank, and Tropical Bank.

Finance Trust and Opportunity bank were the most expensive banks to borrow from between January and June 2020, BoU data shows. For instance, when industry average lending rates were at 20 percent in January, Opportunity Bank and Finance Trust charged 28 percent and 27 percent respectively. As at the end of June 2020, these two banks’ prime charges on loans were still above 25 percent

BoU said in the report that “the majority of banks with higher lending rates tend to have higher non-performing loans (NPLs), a small market share and large”.

NPLs are loans where the borrower has failed to meet their repayment obligations.

Wilbrod Owor, the Uganda Bankers Association executive director said on Thursday in an online meeting that several issues contributed to the way the banks priced their loans.

These include issues surrounding land where one piece can have more than two titles issued and lengthy court processes as banks try to recover their money. Other factors are the size of the bank, the size of the economy and costs banks incur to stay running.

Owor said the fact that the government also continues to borrow from these banks through treasury bills and bonds. The government is the safest borrower every bank wants to lend to because it can tax and payback.

Frustrated that banks were moving slow to reduce interest rates, BoU Governor Emmanuel Tumusiime-Mutebile warned last month that he may be forced to impose a ceiling of what the banks can charge.

At the start of April, BoU asked banks to restructure loans and give borrowers holidays of up to 12 months to allow them to go through the coronavirus pandemic so that they resume payments later. So far banks have restructured loans in the north of 5 trillion shillings.

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6 comments

  1. Peterson Kato Kikomeko

    The naming of banks as here done does little in ensuring that interest rates are lowered. The best would be to set an interest rate ceiling for all banks to follow. Mr. Governor, walk the talk.

  2. Naming of the banks with high and low rates shows you how BOU has run out technical means to bring the rates down. Its an attempt to make those with high rates guilty and possibly make them run their business at ransom and look like black sheep in the kraal. BOU knows exactly why there variations in rates, which I won’t talk about here, however I will remind them of a few ways on how rates can be pushed down. Its good timing that the financial industry is undergoing transformation to digitalisation , BOU should be seen to embrace the wave through fast tracking reforms from traditional banking including data merging to the national IDs and drop financial cards to enable the bigger spectrum of lenders not necessarily banks to quickly ascertain the credit worthiness of borrowers.(the current providers only serve banks and manipulate the data of clients which misguides lenders.)Banks that have taken up digital lending have rates for such loans at far below the normal rates because of simplicity and cost of such lending business(the records BOU has and should be using them). BOU should implore and incourage banks to take up such space which will in the long run impact on the rates too. BOU again should be at the forefront in castigating the suffrage clients are facing in LANDS office because it translates to high rates if they can’t have their land registered in time and or verifiable by lenders among other expected services. All in all BOU has the tools but lacks the will, and mending the will is the first change that will bring the rates down but not creating seals against rates or bringing down the CBR

  3. The Boy should set a obligations that governs all banks including small financial institutions like Brac, Premier, Vision Fund that has started chasing people from their shops even when the BOU have issued an order for as all those with loans should settle in a 12months period

  4. Enock Turyamuhaki

    As the president said when he was addressing the youth,all that interest rate is very high remember when he was accusing stanbic that it’s interest rate at 16% is still high.for middle income earners to recover there should be low interest like 6-10%.
    Bank of Uganda should go extra mile to set ceiling for all financial players including Sacco’s which are easy for people to access loans but their rates are worth to the extent 40% yet most people run there .

  5. There reasons for high rates in different banks. Let the BoU and Govt find a way of reducing the rates for at least 18 months from September 2020 to restore/ improve the standard of living

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