By Patrick Jaramogi

Central Bank governor Tumusiime Mutebile has warned commercial banks to lower their lending rates to levels that reflect the Central Bank Rate (CBR) or face fire.

The tough talking Governor said he would “be harsh” to what he described as ‘stubborn’ banks that charging exhorbitant interest rates.

“When inflation shot up last year we made a decision to increase lending rates. Many people made noise and shouted but this worked out. Today, the inflation has lowered to 5% and we shall keep it there for some time,” he said. He said he hoped those who were making noise had learnt some economics.

“The recovery in real growth requires real buoyance that is why the Central Bank lowered the CBR. But some banks have not reciprocated in lowering the lending rates. Banks must lower the lending rates or I will do what it takes to make sure they do so,” he warned.

Mutebile who was officiating at the launch of Diamond Trust Bank (DTB) Premium Banking at the Serena Hotel in Kampala on Tuesday.

He said businesses fear to take out loans and as a result are performing below their potential leading to the economy to struggle to grow.

“I will now be harsh. You have me and you can’t do anything about it. Be ready to see my wrath,” he said.

He hailed DTB for the excellent stewardship of the bank.

“This bank has been able to expand from one branch in 2005 to 25 to-date. They have doubled their assets and increased their deposit base in the last four years,” he said.

DTB group chairman Abdul Samji said with the opening of the Premium Banking, DTB clients will have secure and eased banking facilities in all their branches.

“We have heard women complaining that their men are spending much money paying loans due to high interest rates, but as DTB, we are geared towards reducing our lending rates to boost business and the national development,” said Samji.

Mutebile said six months after he embarked on a monetary easing regime following sky rocketing inflation, business was returning to normal

A number of commercial banks have been cutting lending rates following continued appeals by the governor over high lending rates despite cuts in the CBR. The CBR has now been set at 12.5%, from 13% in October.

Mutebile pointed out that he does not expect any further reduction in inflation rates because it might have negative economic implications for Uganda.

The loans that have gone bad as a result of defaults due to the high interest rates have increased to 4.9% from 2.1% last 12 months, according to different bank figures.

Banks will face the pressure of weighing the option of either keeping interest rates a little higher to recover the loans that have gone bad, or follow the Central Bank’s call.

The food price shocks that haunted the economy throughout the second half of last year, and the weak domestic demand for goods and services, are hugely responsible for the decline in inflation, according to Bank of Uganda.