This archive report was first published on 17 June 2020.
On June 8, Uganda's central bank, the Bank of Uganda, made a crucial decision to cut its key policy rate by one percentage point to seven per cent, a move aimed at reviving a struggling economy that has been severely impacted by lockdown measures.
Just days before the reading of the National Budget for the 2020/21 fiscal year, this rate cut is expected to have a positive effect on the economy, with lower funding costs for commercial banks and reduced lending rates for borrowers.
However, despite the rate cut, a severe decline in business activity experienced in many sectors and slow uptake of new loans by consumers and businesses are likely to stifle credit growth for the rest of 2020.
According to Bank of Uganda data, the average lending rate dropped to 17.6 per cent in April, but the total value of loan applications received by commercial banks during the same month fell by 50 per cent, with only 20 per cent of loan applications filed in April being approved by commercial banks.
Charles Katongole, head of Treasury and Financial Market Operations at Standard Chartered Bank Uganda, expressed concerns about the credit risk, saying, 'Though the banks' liquidity levels have increased of late, how many borrowers are willing to take up new loans at this time?'
Wilbrod Owor, executive director at the Uganda Bankers Association, however, remained optimistic, saying, 'The banks have completed loan restructuring arrangements with various clients and we shall review their progress reports later this month. There is hope that a combination of monetary and fiscal stimulus measures undertaken by government will eventually restore strong economic growth.'
