Stanbic drops lending rate

April 11, 2016 in Business, Companies, Finance, Financial Services, Markets, Policy by Editor

KAMPALA-APRIL 11- Stanbic’s Ugandan unit became the first lender to respond to the Bank of Uganda’s policy move, shaving a percentage point off its prime rate from May 11, in tandem with the central bank’s decision to reduce the CBR by one point last week.

In press notices, Stanbic said it was reducing its prime lending rate from 25 to 24 percent effective May11, bringing the benefits of the change in the policy rate to its customers.

The reduction comes as the Ugandan banking industry battles subdued earnings emanating from reduced borrowing and high default rates occasioned by steep rises in the CBR that pushed up lending rates.

After holding the CBR at 17 percent for several months, the Bank of Uganda on April 4 pulled the key rate back to 16 percent. Analysts said the Bank of Uganda was trying to stimulate consumer spending as part of efforts to stave off further contraction of the economy that saw constrained growth during the first quarter of calendar 2016.

Turned away by the spike in lending rates following back to back hikes in the policy rate, uptake of credit by the private sector had been in decline, slowing household consumption and production

Lending rates on shilling denominated loans had risen 0.6 percentage points between January and February 2016 to settle at 25.2 percent.

While many banks are yet to report results for 2015, the industry is expected to report subdued earnings on the back of swelling non-performing portfolios as the economy suffered a backlash from high interest rates.

Civil society cluster CSBAG says overreliance on monetary policy to control inflation was taking its toll on growth as it starved the productive sector of access to credit while the high lending rates also dampened household consumption that is necessary to keep the economy ticking.

Presenting a position paper to members of the Finance Committee of parliament this morning, CSBAG pointed out that annual GDP growth has been in retreat since the 9.8percent peak recorded in fiscal 2010/11 with subsequent years failing to achieve growth targets. Quarterly growth remained weak into the first six months of the current financial year, trending 0.5 percentage points. This continued a slanting trend from the last quarter of fiscal 2014/15 when the economy grew at a paltry 0.8 percent.