Kampala. At least all commercial banks in Uganda have adjusted their lending rates upwards in the last one month following the decision by Bank of Uganda (BoU) to raise the Central Bank Rate (CBR).
The banks have also notified customers that the adjustments will be on both “new and existing loans.”
Traders are already up in arms protesting the decision by the banks to increase interest rates on existing loans. As far back as June, the traders had already warned the banks not to increase lending rates on existing loans.
According to Mr Evarist Kayondo, the chairperson of the Kampala City Traders Association (Kacita), traders met with the bankers last month but failed to reach an agreeable conclusion.
“We met the Uganda Bankers Association (UBA) representatives and we never agreed. As you have seen, they have already slapped increased rates on existing loans, which is rather unfortunate,” Mr Kayondo said.
Nearly all commercial banks have their lowest lending rate at 24 per cent. This is up from an average of 22 per cent recorded only just three months ago. Some banks had rates as low as 18 per cent at the start of 2015.
According to BoU statistics, lending to trade is only second to the real-estate sector. Trade comprises 19.6 per cent of all loans, which is about Shs4 trillion.
Shs3 trillion of this alone goes to retail and wholesale trade where Kacita is categorised.
Mr Kayondo said after the stalled meeting with the bankers, the traders are now waiting to meet with BoU officials next week.
“Bank of Uganda had scheduled a meeting with us this week, but they rescheduled it. We are still patient and we should be meeting them next week,” he said.
This is not the first time Kacita are protesting increment of interest rates on existing loans.
In 2012, they closed their shops until they gained the audience of President Museveni, bankers, BoU, ministers of finance and Trade.
Despite this pressure, bankers did not give in to the demands of Kacita at the time. Uganda being a market economy, the banks set interest rates depending on what they term as “market and economic conditions.”
BoU aises customers to get fixed loans
When Bank of Uganda (BoU) raised the CBR to 14.5 per cent in July, the bankers followed suit.
BoU has often said people are free to negotiate terms with their banks on what loans they take. Customers have the option of negotiating with their banks for fixed interest rate loans or variable rate loans.
Dr Louis Kasekende, the deputy Governor BoU in 2012, at the time of the traders’ strike, warned that borrowers should negotiate for fixed rates, to avoid paying higher rates.
“Variable rate loans are not necessarily disaantageous for borrowers because sometimes they are cheaper than fixed-rate loans. But if borrowers do not want to run the risk of having to pay higher interests rates in future, they should insist on a fixed interest rate loan,” Dr Kasekende wrote at the time.