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Kampala, Uganda | URN | Last month – May 2026 – experienced some reactions in the financial market, with banks slightly reducing their interest rates while treasury bond yields also fell.
As was the case for April 2026, interest rates registered varying trends in response to the Central Bank Rate (CBR) which was maintained at 9.75 percent, commercial bank lending rates, and yields on Treasury Bills and Treasury Bonds in May.
In April 2026, the average lending rate for shilling-denominated credit declined to 18.26 percent, from 18.89 percent in March 2026. The Central Bank attributes this reduction partly to a lower risk premium charged by lenders (commercial banks), supported by the decline in non-performing loans.
While deciding the CBR, the Central Bank’s Monetary Policy Committee said their stance was appropriate and consistent with prevailing macroeconomic conditions.
While acknowledging the inflationary risks arising from the Middle East crisis, the Committee held that existing policy settings remained sufficient to support price stability.
Investor appetite for government securities remained strong throughout the month, with all Treasury bill auctions oversubscribed.
The average bid to cover ratio stood at 2.15 in May 2026, indicating that demand was more than twice the amount offered.
In March and April, the stock of outstanding private sector credit grew steadily, going up 1.8 percent to 26.43 trillion in April 2026, up from 26 trillion in March 2026, according to records at BoU.
This was the second consecutive month of growth in private sector credit following a contraction of 0.2 percent in February 2026.
The expansion is attributed to “continued resilience in economic activity and sustained demand for credit by the private sector,” although the pace of growth was not as fast compared to the previous month.
The bank says growth in outstanding credit was further supported by lower domestic lending rates while lenders saw lower borrower risk following improvements in loan performance as indicated by the decline in non-performing loans.
Shilling-denominated credit rose to 18.44 trillion shillings in April 2026 from 18.2 trillion in March 2026, while foreign currency-denominated credit increased to almost 8 trillion from 7.76 trillion shillings over the same period.
Loans not approved
During the month of April 2026, credit approved for disbursement by lending institutions amounted to 2.1 trillion shillings out of total loan applications worth 4.1 trillion, meaning that half of the value of loans applied for was not approved.
Although the loan approval rate declined for the second consecutive month in April 2026, it remained above the rate recorded at the beginning of the calendar year (38.7 percent), indicating that lending activity remained relatively supportive despite the month-on-month decline, according to BoU.
An aggregation of the loan values shows that the Personal and Household Loans sector continued to account for the largest share of approved credit in the month, receiving 32 percent of the total, up from 26.7 percent received in March 2026.
This was followed by Building, Construction and Real Estate with a 14.2 percent share, while Trade took 12.1 percent, Business, Community, Social and Other Services 10.5 percent, and Mining and Quarrying 10.1 percent.
There was a notable increase in the loan approvals to the mining and quarrying sector which is attributed to the growing investment activity and financing needs associated with the extractive industries.
This trend is supported by heightened expectations surrounding developments in the oil and gas sector as well as continued activity in gold-related activities.
On the other hand, the weighted average lending rate on foreign currency-denominated credit rose to 7.34 percent in April 2026 from 6.65 percent in March 2026.
A BoU analysis cites the increased uncertainty in global financial markets stemming from geopolitical tensions in the Middle East, which contributed to higher global risk premiums.
Government Securities During the month of May, the Government raised 1.48 trillion shillings from three auctions, two for Treasury Bills and one for Bonds, to fund the budget and other financial obligations. A total of 529 billion was raised from Treasury Bills while 954.7 billion was from Treasury Bonds.
Of the total amount raised, 799 billion shillings was used for refinancing maturing securities while 684.6 billion went to financing other items within the Government budget.
Yields on treasury bonds
Except for the 15-year bond, yields (interest rates) on Treasury Bonds edged downwards in May 2026 compared to the rates registered in previous issuances of similar securities.
Yields for the 2-year and 5-year bonds declined to 13 percent and 14.5 percent down from 13.5 percent and 15 percent, respectively.
The decline in yields for Bonds is said to have partly come from market expectations that Government will reduce domestic borrowing towards the close of the financial year, given that Government had already realized over 90 percent of its planned domestic debt issuance for the year 2025/2026.
Absa Bank Uganda’s Head of Trading, CIB Markets, Catherine Kijjagulwe, says interest rates were bound to ease as government seeks external financing and as oil exports begin next financial year.
She noted that the anticipated inflows may stabilise the financial market and relieve upward pressure on lending rates.
Several independent analysts have welcomed the plans by the Ministry of Finance, to cut new domestic borrowing (through Treasury Bill and Bonds) targeted at around 9 trillion shillings from 11.4 trillion in the previous year.
The Ministry says this is aimed to avoid crowding out the private sector, curb the rising debt-to-GDP ratio, and ease the growing burden of interest payments which are consuming a large share of revenues.
Jane Nalunga, the Executive Director at SEATINI (Southern and Eastern Africa Trade Information and Negotiations Institute) Uganda, says that while new borrowing is being cut, high refinancing needs could still strain the market and crowd out private investment.
