KAMPALA, December 11, 2025 — Commercial lending rates in Uganda are expected to remain unchanged, supported by stable macroeconomic conditions marked by low inflation, anticipated economic growth, and a steady Central Bank Rate, according to the Bank of Uganda [BoU] Bank Lending Survey for the second quarter of the 2025/26 financial year.
BoU’s Monetary Policy Report for November 2025 notes that the outlook for lending rates in the country is balanced. Downside risks include anchored inflation expectations, sustained economic growth, and a stable foreign exchange market. However, upside risks remain, driven by sector-specific rate adjustments, renewed fiscal pressures, and shifts in global financial conditions.
“Although lending rates have declined recently compared to averages exceeding 20 per cent in previous years, they remain relatively high, mainly due to structural rigidities within the financial sector,” the report states.
The Monetary Policy Report for November 2025 adds that the recently enacted mortgage refinancing law, allowing for extended repayment periods, is expected to help reduce interest rates. New innovative and affordable funding options are also anticipated to ease pressure on domestic market financing.
Average weighted lending rates rise
The report shows that the weighted average shilling lending rate increased in the three months to September 2025 compared with the previous three months to June 2025. This rise followed a temporary spike in July 2025 caused by heightened end-financial-year government borrowing, which drew commercial banks towards high-yielding government securities.
Specifically, the shilling lending rate rose to 18.85 percent in the three months to September 2025, up from 18.12 percent in the three months to June. In contrast, the lending rate on foreign-currency-denominated loans edged down to 8.28 percent from 8.45 percent, partly due to an appreciated exchange rate.
The rise in shilling lending rates is attributed to increased appetite for government securities among commercial banks amid attractive yields. The average one-year shilling prime lending rate also increased marginally to 20.6 percent in the three months to September, from 20.5 percent in the preceding quarter.
Sectoral lending rates
Sectoral lending rates showed mixed movements in the three months to September 2025 compared with the period to June. Rates for agriculture and mining and quarrying declined sharply to 19.8 per cent and 18.3 percent, respectively. Meanwhile, lending rates for manufacturing, trade, transport, housing, and personal loans increased modestly, with notable rises in the transport and housing sectors to 15.5 percent and 20.1 percent, respectively.
Compared with September 2024, lending rates for agriculture, mining, manufacturing, and transport fell significantly, while rates for trade, housing, and personal loans rose slightly. This reflects sector-specific dynamics within an overall environment of relatively high but stable lending rates.
“Growth in shilling-denominated credit fell to 10.8 percent in the three months to September 2025, from 11.9 percent in the three months to June, while growth in foreign-currency-denominated loans declined to 4.7 percent from 6.0 percent over the same period,” the report notes.
Total net credit extensions, including capitalised interest and revaluation, fell to Shs 1.2 trillion in the three months to September from Shs 1.4trn in the three months to June. This decline in private sector credit reflects a shift within the financial system, as commercial banks favoured higher-yielding, low-risk government securities over private sector lending, largely driven by increased domestic financing needs of the public sector.
Demand and supply of credit rise
Despite the fall in credit extensions, both credit demand and supply increased in the three months to September 2025. Demand rose to Shs 8.7trn, up from Shs 7.0trn, while supply increased to Shs 5.7trn from Shs 5.3trn, supported by improving non-performing loan [NPL] levels.
The report says the NPL ratio improved slightly to 3.66 percent, from 3.74 percent in the previous quarter. However, the rate of credit approval fell sharply to 65.9 percent from 75.7 percent, as commercial banks continued to prioritise government lending.
The rebound in credit demand, coupled with falling approval rates, suggests tightening lending standards despite improving borrower sentiment, indicating cautious optimism within the banking sector as the economy stabilises.
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