Private sector credit contracts slightly as lending rates edge up – economic report
The report indicates that outstanding private sector credit fell by 0.5 percent from Shs 23.90 trillion in June to Shs 23.79trn in July 2025
KAMPALA, September 20, 2025 – Uganda’s private sector credit stock experienced a slight contraction in July 2025, according to the latest Performance of the Economy Monthly Report released by the Ministry of Finance, Planning and Economic Development [MFPED].
The report indicates that outstanding private sector credit fell by 0.5 percent from Shs 23.90 trillion in June to Shs 23.79trn in July 2025. This was largely driven by a reduction in both Shilling-denominated credit, which dipped by 0.06 percent, and foreign currency-denominated credit, which dropped by 1.55 percent.
“The slight decline in credit reflects a tightening in lending conditions, partly due to a rise in commercial lending rates,” the Ministry noted in the report. “Nevertheless, despite the dip in July, the overall trend since the beginning of the calendar year remains upward.”
Credit approvals and sectoral distribution
In terms of credit extensions, banks approved Shs 1.84 trillion in new loans in July 2025 out of a total Shs 3.03 trillion worth of applications, representing an approval rate of 60.9 percent for the month.
As in the previous month, Personal and Household loans took the lion’s share of approved credit at 28.2 percent, followed by Building, Construction, and Real Estate [21.7 percent], Trade [15.1 percent], Business, Community and Social Services [12.4 percent], and Agriculture [8.8 percent].
“The dominance of household lending reflects ongoing demand for consumption credit, but also raises concerns about household indebtedness,” an analyst at MFPED observed.
Lending rates on the rise
The cost of borrowing in local currency rose during the month, with the weighted average lending rate for Shilling-denominated credit climbing to 19.65 percent in July, up from 19.07 percent in June.
“This increase was influenced by prevailing market conditions and liquidity tightening,” the Ministry said. In contrast, foreign currency lending rates eased slightly, falling from 8.78 percent to 8.35 percent. Despite the rise in the local currency lending rate, the Bank of Uganda has maintained its central bank rate [CBR] at 9.75 percent.
President Museveni blames banks over high interest rates
Recently, President Yoweri Museveni criticised commercial banks for encouraging dependency and hindering business growth in Uganda by charging high and unreasonable interest rates.
Speaking at the inaugural Uganda Development Finance Summit at the Commonwealth Resort in Munyonyo on September 1, 2025, the President said interest rates over 20 percent are preventing Ugandans from making productive investments.
“How do you lend at 22 percent per annum when inflation is below 5 percent? At such rates, people cannot do serious business; they can only engage in quick import trade of perfumes and wines. These banks are engines of Africa’s dependence,” Museveni remarked.
Government securities and domestic debt management
The government raised Shs 1.13trn from three domestic auctions of government securities in August 2025. Of this, Shs 717.34 billion was used to refinance maturing securities, while Shs 410.14bln went towards financing other items in the national budget.
Annualised yields on Treasury Bills showed mixed movements. The 91-day bill yield dropped slightly to 11.5 percent [from 11.6 percent], while the 182-day bill yield rose to 13.5 percent [from 13.2 percent]. The 364-day bill yield remained unchanged at 15.3 percent.
Investor interest remained strong, with all Treasury Bill auctions oversubscribed. The average bid-to-cover ratio stood at 1.69, reflecting robust demand for short-term government paper.
Long-term bonds see strong uptake
Yields on Treasury Bonds saw notable downward movements, particularly for longer-tenor securities. The 5-year and 15-year bonds registered yields of 15.5 percent and 17.7 percent, respectively, down from 16.8 percent and 17.8 percent in previous issuances. The 2-year bond held steady at 15.8 percent, while the newly introduced 25-year bond debuted with a yield of 16.0 percent.
The 25-year bond, issued for the first time on August 6, 2025, marked a milestone in Uganda’s domestic debt strategy.
“This issuance is part of government efforts to extend the maturity profile of domestic debt and reduce refinancing risks,” said a senior official at the Ministry. “The strong investor appetite for this bond underscores growing confidence in Uganda’s long-term fiscal and monetary outlook.”
https://thecooperator.news/private-sector-credit-growth-remains-flat-as-lending-rates-rise-report/
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