Commercial Banks Increase Interest Rates On New Credit

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Commercial banks increased interest rates on borrowing in the six months period to October due to uncertainty associated with the adverse impact of the pandemic on key economic sectors.

According to a report from Bank of Uganda on the performance of the banking sector for December 2021, the overall weighted average lending rate on new credit rose to 19.7% in October 2021 from 16.3% in July 2021.

“Interest rates rose month-on-month for all sectors, except for the manufacturing and transport and communications sectors. Notably, the electricity and water sector registered the highest increase of 7.1 percentage points, month-on-month,” BoU said in a report.

The central bank noted that the higher lending rates by commercial banks is related to restrictive measures of the pandemic, expiry of credit relief measures, as well as deterioration in asset quality in the sector.

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Credit relief and loan restructuring measures that were put in place from April 1, 2020, expired in September 30, 2021.

In November, the BOU issued exceptional permission allowing Supervised Financial Institutions, at their discretion, to offer a repayment credit relief to their creditor in the education and hospitality sectors.

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