18 December 2012

Uganda: Which Bank Has the Cheapest Loans?

The two largest banks in terms of assets, Stanbic and Standard Chartered, have the lowest interest rates on credit in the market, while United Bank of Africa and Equity bank remain the most expensive lenders, according to figures from the Central bank.

Although many banks have reduced their lending rates from the highs of 30 per cent between October last year and February this year, the reductions have been marginal. Inflation, which peaked in that period, has since fallen below five per cent but interest rates still average 23 per cent.

As a result, Bank of Uganda notes that the economy will grow below expectations partly because of low uptake of credit to boost businesses, with many borrowers still steering clear of the expensive loans. Even after BoU reduced its key rate - the Central Bank Rate - many commercial banks have been reluctant to follow suit.

This has only gone to prove some industry experts right, who argued back then that while commercial banks did not hesitate to push up their interest rates to reflect the increase in the Central Bank Rate, few, if any, would hurry to reduce their rates if market indicators improved.

Bad loans

Industry sources, however, argue that the current public perception of banks as greedy hyenas ready to squeeze every cent out of already distressed borrowers is unjustified. According to a senior official in a Kampala commercial bank, the banks got money at very high interest rates, and they have to repay their loans at those rates.

It means the banks would have to wait until they have repaid such 'bad' loans before they can significantly reduce their rates.

"We have a lot of money on fixed deposits, and we gave those people high rates; we cannot now give them less and explain that the CBR has been reduced," said another commercial bank official. "So, the rates have to come down gradually."

Other observers argue that because of the financial squeeze of recent times, some banks have had tough times recovering loans. They thus maintain the high rates as a way to limit loan applications to borrowers on particularly firm financial ground.

The effect of this latter thinking, however, is to punish credible borrowers, who get lumped up with others as a public with poor credit worthiness.

Yet this only invites the old questions: Why hasn't the Credit Reference Bureau, which was launched with so much fanfare more than two years ago, helped reduce the interest rates in the market as it was promised? What can BoU do to bring down rates other than desperate pleas to commercial banks?

BoU Governor Emmanuel Tumusiime-Mutebile has already made his anger known over the banks' reluctance to cut lending rates. In recent weeks, however, the governor's tone over his disappointment with the high interest rates has softened, and one gets the sense that like many borrowers, everyone is at the mercy of the whims and charms of commercial banks.

Please see table above for the interest rates for November 2012 as published BoU. Not every bank is listed, though. Centenary bank officials say their lending rate is 22 per cent.

Bank Prime lending rates (%) for November 2012

Stanbic bank


Standard Chartered bank 21



Tropical bank


Housing Finance bank


Bank of Africa (BOA) 24



Crane bank


Diamond Trust bank








Equity bank 24.5

United Bank of Africa


Source: (BOU 2012)

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