In spite of indication that the economy is stabilising, Ugandans are still paying expensively for the loans they got from the bank.
Fewer people were borrowing after the central bank increased its benchmark Central Bank Rate (CBR) to 23% at its highest in December to January, forcing commercial banks to raise their borrowing rates to 29.5%, turning away many potential borrowers.
Today, the CBR has been reduced to 15% but, banks are still lending at a high rate. As of today, the fairest of them is Centenary Bank, lending at 24%.
Standard Chartered has also just reduced from 25.5% to 24%. These are followed by dfcu and Kenya Commercial Bank (KCB) follows at 26%.
Stanbic and Housing Finance are at 26.5% (Stanbic has reduced to 23% effective September 28), followed by Global Trust Bank at 26.75%. Eco Bank Uganda is at 27.5%.
Just this week, Bank of Uganda Governor Emmanuel Tumusiime Mutebile reduced the CBR for a fourth successive month to pave way for banks to cut their lending interest rate in order to stimulate resumption in borrowing and ease the load off weary salary loan, car loan, and construction loan holders.
Banks peg their interest rates on the CBR and at 15%, they should be fixing their lending rates at atleast three percentage points to 18%.
They then factor in other risks in the market and an analysis by Saturday Vision indicates that the logical lending rates should go to at least 21%.
However, today, the difference between the CBR and the average prime commercial bank lending rates for 5 major banks has risen to 9.05% at the end of August 2012, from 6.6% at start of the index in July 2011.
Changes in the central bank rate and commercial bank rates have seen many borrowers struggle to retain land and property.
A recent court case saw a one David Luyiga battle to save huge tracts of land in the city suburbs of Mengo, Kiwatule, Mutundwe and Wakiso from being listed for auction after his monthly payments on a sh2.7b loan were increased to sh89m from sh63m.
Explaining the situation, Stephen Kaboyo, the Alpha Capital Partner's boss says each bank has a unique loan pricing model. The rates are determined by where the bank is raising its funds; customer deposits or the money markets.
They are also determined by its operating costs, the clients default risk and the banks profit margin.
"The interest rate paid to either the depositors or in the money markets known as the cost funds is a strong input in determining the lending rates," he said.
"If the CBR keeps dropping, we could see rates under 20% by the end of year," he noted.
Increases in lending rates gifted large end-of-year profit for most banks in the year 2011. Tropical bank balance sheet shows a jump in loans and advances to sh104.8b at the end of 2011, from sh84b.
Standard Chartered recovered sh1trillion from loans and advances from sh864b in the year 2010, as did the Housing Finance Bank with sh53b from sh35.6b. Bank of Baroda obtained sh293b from sh226b in the same period.