The permanent secretary at the finance ministry, Ramathan Ggoobi, has asked commercial banks to stop penalising borrowers who seek to clear their bank loans ahead of time.

Ggoobi, also secretary to the treasury, said there are individuals who want to pay their bank loans but do not allow them without extra costs.

Ggoobi said banks prefer customers to stay with the loan until the final dates. This enables banks maximise interest rate earnings from the loans.

“We are engaging banks to stop penalising borrowers who clear their loans ahead of time. Why penalise someone who wishes to clear his loan ahead of time,” Ggoobi said.

Adding: “We do not have a credit policy which we are going to work on. We want banks to support the real economy. They are more into speculation. They lend to people and when they fail they sell the properties that were used as collateral”.

He noted that lending rates have remained high despite arguments that there would be a decline in lending with the increasing of licensing of commercial banks.

According to the Bank of Uganda, the banking sector’s resilience to the pandemic shock has been aided by the Bank of Uganda’s policy measures although systemic risks are heightened due to the slow pace of economic recovery.

The banking sector's non-performing loans ratio rose to 5.4 percent in the quarter to September from 4.8 percent in June 2021.

Bank of Uganda has gradually reduced the central policy rate from 9 percent in February 2020 to an all-time low of 6.5 percent in August 2021 and kept it steady beyond to stimulate the recovery of economic activity.

The Central Bank has urged commercial banks to reduce lending rates in step with the central bank rate, especially since inflation has remained contained and its outlook is benign.

Having maintained the credit relief measures for the hardest-hit contact-intensive sectors that remain under pandemic containment restrictions, the Bank of Uganda said that commercial banks have committed to easing the debt burden facing the education and entertainment sectors, on a case-by-case basis and at the discretion of each lender.

In an environment of increased risk aversion, banks holdings of government securities spiked 31.1 percent in the year to September 2021. Private sector credit growth declined to 8.6 percent in the year to September 2021 from 10.2 percent in the year to September2020.

Michael Atingi-Ego the deputy governor at the Bank of Uganda said that the banking sector remains liquid and profitable although strict vigilance must be maintained against the impact of potentially higher non-performing loans going forward.

The Bank of Uganda in partnership with stakeholders such as the Uganda Bankers Association are championing the development of a National Payment Systems Strategy to promote electronic payments through a four-pronged approach.

These are; promoting infrastructure development and interoperability via a centralised switch to reduce transaction costs, operationalising the National Payment Systems Act, 2020, fostering innovations, competition, consumer protection and digital financial literacy and strengthening collaboration among supervised financial institutions, FinTechs, government ministries, agencies, departments and development partners.