Survey: Commercial banks expected to maintain lending rates

Commercial banks are expected to maintain their price terms and conditions with a bias towards easing interest rates for average loans and prime borrowers according to a quarterly bank lending survey conducted by the Statistics department of Bank of Uganda.

The expected net easing of average loans and prime borrowers is based on the low level of the Central Bank Rate (CBR), low cost of funds and competition among banks for prime borrowers.

As regards non-price terms and conditions, the survey says banks expect to keep non-interest rate charges and maturity period largely unchanged with a bias towards easing non-interest rate charges and tightening for maturity period

Price terms and conditions for consumer credit are expected to tighten on a net basis for riskier loans, but ease for average loans and prime borrowers over the next three months to December 2020.

Majority of the non-price terms and conditions are expected to remain unchanged with a bias towards tightening on a net basis, except for non-interest rate charges that are anticipated to ease.

On a net basis, banks expect the default rate on loans to both enterprises and households to increase in the three months to December 2020.

The expected increase in default rate on loans to enterprises and households is mainly attributed to the negative impact of the Covid-19 pandemic on the business activities, employment and incomes of firms and households.

The survey results indicate that majority of the banks (77.0%) expect their lending rates to remain largely unchanged, 23.0 percent expect the rates to decrease, while no bank expects the rates to increase over the next quarter to December 2020.

The quarterly lending survey conducted by Statistics Department captures past and prospective developments in the credit market.

The survey was designed to complement existing quantitative data on credit and lending rates.

The main objectives of the survey were two-fold. First, to enhance BOU’s understanding of the lending behaviour and loan financing conditions among the deposit-taking institutions. Second, to capture Leading information on credit developments.

The survey covered the outturn for the quarter ended September 2020 and expectations for the quarter to December 2020.

Questionnaires were completed by all 24 commercial banks and 9 nonbank deposit-taking financial institutions in Uganda.