Lending rates surged to 18.4 percent in August, says report

KAMPALA, October 18, 2023 – Lending rates for the shilling-denominated credit increased in August 2023 to 18.4 percent from 17.95 percent in July 2023, according to the latest Performance of the Economy Report published by the Ministry of Finance.

The report published for the month of September attributes the rise in lending rates in the country to the tight monetary policy stance of the Bank of Uganda [BoU], which includes among others a higher cash reserve requirement for commercial banks.

On the other hand, the report shows lending rates for foreign currency-denominated credit declined from a weighted average of 9.18 percent in July 2023 to 8.57 percent in August 2023.

Outstanding private sector credit

According to the report, the stock of outstanding private sector credit amounted to Shs 20.8 trillion in August 2023, an increase of 1.5 percent from Shs 20.5trn recorded for July 2023. Of the total stock as at end of August 2023, Shs 14.77trn was denominated in the local currency while an equivalent of Shs 6.069trn was denominated in foreign currency.

“The growth in the stock of private sector credit reflects the optimism of economic players in the resilience of the economy and the prospects of a continued pick up in the level of economic activity,” says the report.

Credit extensions

In August 2023, the value of credit approved by banks for extension to the private sector amounted to Shs 1. 087trn which is 2.7 percent less than the Shs 1.1trn that was approved for disbursement in the previous month, says the report.

It adds that the credit approved in August 2023 was against applications valued at Shs 1.7trn, resulting in an approval rate of 65.7 percent. “This approval rate in August is better than the 61.0 percent registered in July 2023 partly implying reduced risk aversion by lenders during the month.”

There was a significant increase in the amount of loans approved for disbursement personal and household use from Shs 298.83bln in July 2023 to Shs 345.86bln in August 2023, and agriculture sector whose disbursement increased from Shs 133.94bln to Shs 160.59bln.

The report says of the total amount of loans extended to the private sector in August 2023, 2.9 Shs 31.44bln was extended through mobile money platforms where the approval rate was above 95 percent. “This further reflects the benefits of digitising the economy and underscores the potential for growth in this area,” the report says.

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