Kampala, Uganda - The high lending rates by commercial banks have raised complaints from consumers and traders who have called on the intervention of the lawmakers and regulators to reign in on the rising rates.
However last week Emmanuel Tumusiime Mutebile the Bank of Uganda Governor clarified that the central bank cannot intervene for the banks to reduce the rates.
Mutebile said the banking sector in Uganda is liberalised and also operates according to the prevailing market conditions and as such BOU intervention is not likely.
The Kampala City Traders Association (KACITA), Uganda Manufacturers Association and Makerere University lecturers have protested the high rates and requested that commercial banks explain why they keep adjusting their loans.
The rising interest rates have been mainly driven by BOU's stance to tighten the monetary policy as it aims to target the double digit inflation in the country. Inflation in December 2011 slowed to 27% from 29% in November 2011. To target the inflation, BOU has been raising the benchmark Central Bank Rate that as of January 2011 is at 23%.
According to commercial banks the high interest rates are driven by the rising CBR. A high CBR is meant to create a squeeze on the amount that commercial banks can lend out to deal with inflationary pressures.
"As expected, this stance has resulted in an increase in lending rates from weighted average of 21.7% in July 2011 to 25.4% in November 2011," the governor says.
He adds that "Lending rates on personal loans increased from 21.7% to 25.7% in November 2011 contrary to what has been reported that personal loans are above 30%."
Mutebile acknowledges that as long as they keep raising the CBR commercial banks would also "follow suit" on their lending rates.
"Clients have to negotiate with their banks on the loans they take if not, they have to find banks that offer better rates for them," he adds.
The argument by traders, is mainly focused on the increased monthly loan repayments that they have to make since they have floating interest rates.
It is from this point, that the bank clients are therefore required to read their loan papers before they sign or agree to the terms. The BOU is only limited on what it can do apart from compelling banks to make sure clients are able to read and understand the terms on their loans.
A banking expert from Standard Chartered Bank, however, says that clients can renegotiate with banks and reschedule their loan repayments in order to ease on the likely shocks of businesses. Banks with either offer a customer fixed rate which remains constant despite the market conditions or a variable/floating interest rate that is affected by market conditions.
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