UPDATE: Stanbic announces 3rd rate move in six months

September 5, 2016 in Business, Companies, Finance, Financial Services, Markets by Editor

This version contains comments on by CEO Patrick Mweheire

KAMPALA, SEPTEMBER 5 – Uganda’s largest lender Stanbic over the weekend announced another reduction in its lending rate bringing its prime to 22pc starting October.

The reduction, the third so far this year, mimics similar action by the central bank that has slashed 300 basis points off its CBR since April to 14 percent at its last sitting in August. The move puts Stanbic at par with Tropical Africa Bank which has been offering a prime of 22pc, as cheapest source of commercial credit in the market today.

“We believe that the more affordable it is for our customers to pay back the money we lend to them for personal and business purposes the more value they will be able to create from their borrowings and the less likely they will be to default on their re-payments. This has a positive effect on the overall economy and enhances domestic growth through stimulating private sector credit growth,” Stanbic CEo Patrick Mweheire said in the statement announcing the reduction.

Most of Stanbic’s peers have todate failed the central banker’s moves with their primes still trending above 23pc.  Some did not respond to the previous two downward adjustments in the CBR, only making token reductions ranging from 0.5-1.5pc – equivalent to just a half of the central bank’s moves since April.

Stanbic has been on a bullish run even as the lag effect of a difficult 2015 continue. The bank reported a credit loss ratio of just 1.6pc, well below a current industry average that is nearly double that figure.

256BN has been told by a senior commercial banking figure that many lenders are trapped with high rates because they locked in generous interest rates on fixed deposits for customers when the CBR was still at 17 percent. According to the source, returns as high as 20pc are not unheard of in the industry. Yet, others are still struggling with huge non-performing assets – staggering their response to the CBR allows them to milk their more credit worthy borrowers. The non-performing portfolio is expected to peak at 9pc later this year.

The Bank of Uganda has adopted a relaxed monetary stance since April as it tries to jump-start a stalled economy that grew just 4.6pc in 2015 as firms were starved of credit amidst primes that averaged 27pc.

Inflation has also recently come down with the Uganda Bureau of Statics UBOS saying annual headline inflation had shrunk to 4.9pc in August. But UBOS says the reduction was not driven by improved supply but rather constrained demand because of low purchasing power parity.