19 September 2012

Uganda: Banks Explain High Lending Rates

Unless the cost and liquidity in the market improve, the lending rates will continue to be high, commercial bank top executives told MPs.

Philip Odera, the chairman of the Uganda Bankers Association, told the parliamentary committee on national economy that the cost and availability of liquidity were some of the biggest determinants of commercial prime lending rates.

"With greater availability of low cost funding, banks will be able to pass this onto our borrowing customers in the form of lower interest rates because banks want to see the economy grow as this is in our collective interest and serves all parties," Odera said.

He observed that contrary to public opinion, commercial banks do not like "abnormally high interest rates as they negatively affect the banks too as nobody will be borrowing."

"When customer default rates increase quite alarmingly, many loans will then be written off, affecting overall profitability," he added.

However, Odera's submissions did not satisfy MPs who continued to wonder why the banks cannot adjust their charges in line the Central Bank benchmark rate of 15%.

Steven Mukitale, the committee chairman, challenged commercial banks to put on a human face and reduce the rates.

"Although it is a compound situation, commercial banks ought to reduce lending rates because they can't enjoy the profits and fail to enjoy losses. They should have a human face," he appealed.

Kamara Nizeyimana, the Bufumbira North MP, threatened to mobilise legislators and civil servants to sue banks if they fail to lower their rates.

Wafula Ogutu, the Bukooli Central MP, blamed the high interest rates on the weak bank law that does not protect the national interests.

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