Lenders pledge lower rates as Kasaijja proposes tighter loan monitoring

October 25, 2016 in Business, Companies, Finance, Financial Services, Markets by Editor

KAMPALA, OCTOBER 25 – Ugandan finance minister Matia Kasaijja is proposing more proactive loan management to avoid the high default rates currently plaguing the banking industry.

Speaking headlining the Uganda Bankers Association Stakeholder Dialogue today, Kasaijja argued that while more rigorous monitoring of borrowers would have short term costs, in the long term it would save lenders the burden of a huge non-performing portfolio.

Banking industry stakeholders’ were meeting in the wake of last week’s takeover of the management of Crane Bank by the Central Bank. “Borrowing money is not bad but the problem comes about when people borrow
and refuse to pay back either because they choose to divert the borrowed money to other things or when the business which they borrowed to finance fails.

“If lenders were following up their customers, they would be able to arrest such situations in time. Banks will complain that it becomes expensive but it saves you in the long run,” Kasaija said citing Crane Bank which declared an Ushs 47billion profit in 2014 but made loss of Ushs 3billion just a year later.

The banker’s lobby chief Wilbrod Owor said among other interventions, the industry was looking to better coordination through the Credit Reference Bureau to reduce the risk of credit multiple lending against already pledged collateral.

Lenders meanwhile pledged to continue reducing their primes even though the lowest spread between the CBR and the prime lending rate remains 800 basis points. “The banking sector is taking stock of key drivers of the cost of credit to work towards both an immediate as well as downward revision of lending rates in spite of the huge challenge posed by the current high industry average of non-performing loans which impact on capital adequacy and constrain lending appetite and liquidity,” said Fabian Kasi the Chairman of the bankers association.

Kasi explained that because credit to the Private Sector had dropped to 4.9percent compared 9.6 percent at the same point last year as a result of increases in the non-performing loans and heightened risk aversion by the banks, lowering the prime lending rates was one of the ways the Banks will stimulate aggregate demand in the economy.

“It is necessary to support all our clients by providing amicable and longstanding solutions like making credit available and also making it possible for all clients to access a variety of financial services in the immediate, mid and long-term in the quest to stimulate aggregate demand amidst all the challenges the economy has experienced,” he said.