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Lending rates to drop in 2010

By Vision Reporter

Added 10th December 2009 03:00 AM

COMMERCIAL bank lending rates are projected to decline next year due to increased competition in the financial sector and a fall in interest rates on government securities, the chairman of the Uganda Bankers Association (UBA) has predicted.

COMMERCIAL bank lending rates are projected to decline next year due to increased competition in the financial sector and a fall in interest rates on government securities, the chairman of the Uganda Bankers Association (UBA) has predicted.

By Sylvia Juuko

COMMERCIAL bank lending rates are projected to decline next year due to increased competition in the financial sector and a fall in interest rates on government securities, the chairman of the Uganda Bankers Association (UBA) has predicted.

“The Central Bank has made an aggressive move to inject liquidity into the market, which has forced down short-term market rates and Treasury Bill and bond rates.

“This will bring down lending rates,” Lamin Manjang said.

The central bank’s 91-day Treasury Bill rate is currently at 6.06%, while the bank rate, the rate at which commercial banks borrow from the Central Bank, is at 10.13%.

“I cannot predict a particular rate, but I can talk about the direction of the rates,” Manjang said in an interview recently.

He added that increased competition among banks and the setting up of the Credit Reference Bureau (CRB) were also expected to orchestrate the lowering of lending rates.

“With new banks licensed, there has been more competition for deposits and loans. That has put pressure on interest rates in the market.

“The CRB will allow us distinguish good borrowers from the bad borrowers. Those with very good credit history, clearly have an advantage in terms of getting better rates,” he explains.

Other macro-economic indicators like inflation, which has reduced to 12% as at the end of November, will bode well for lower interest rates.

Commercial banks have in the past been criticised for charging high rates, but they argue that bringing rates down will be a collective action by the Government, commercial banks and individual borrowers.

Analysts say lending rates are a reflection of unsustainable levels of the budget deficit and high cost of doing business in the country. These include utility, security, fraud and other risks, which have to be covered by high returns.

Manjang said the financial sector had continued to grow in 2009 and weathered the effect of the global economic recession.

“As evidenced by the global financial crisis, a sick banking sector is contagious and affects all other sectors in the economy.

“That’s why what started as a global financial crisis, quickly degenerated into a global economic crisis that affected all economies in the world. Uganda’s banking system was not exposed to the toxic assets and it wasn’t adversely affected,” he explained.

He noted that the sector had to contend with a skills gap and the threat of fraud.

“UBA has challenges like the threat of fraud and forgeries in the banking industry. Fraud affects confidence in the industry and UBA is alert to this growing threat.”

“We organised a workshop for all managers in commercial banks to discuss and agree on ways to battle this threat.

“We need support of all stakeholders, including the Police, to ensure all suspects are prosecuted successfully to act as a deterrent to other fraudsters,” said Manjang.

Lending rates to drop in 2010

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