BOU targets commercial banks over high interest rates

By John Odyek

COMMERCIAL banks in Uganda are not heeding to Bank of Uganda’s call to reduce interest rates and lend more to the private sector. High interest rates have put off many borrowers in Uganda.

Bank of Uganda reports state that there has been only a modest increase in the stock of private sector credit. 

It said the level of private sector credit at the end of December 2013 was sh8.62 trillion, which is about 8% higher than the June 2013 levels.

The ministry of finance states that in spite of a reduction in both inflation and the Bank of Uganda policy rate, lending rates charged by commercial banks continue to be prohibitively high and are keeping borrowers away from the credit markets.

“We will continue to work with financial institutions to reduce the cost of loanable funds, by reducing the cost of doing business. There are a number of reforms that are expected to have a positive impact on financial sector,” finance minister Maria Kiwanuka said.

These include amendments to the Financial Institutions Act to introduce Islamic banking, fast tracking of the national identity card project which will make it easy for banks to track clients and more difficult for borrowers to default, financial literacy campaigns which are aimed at empowering borrowers to make rational decisions, the liberalization of the pension sector which will improve liquidity in credit markets.