Two weeks after the Central Bank slashed its signaling CBR rate to a record low of 10 percent Stanbic Bank has announced a slash of its lending rate by one percentage point from 19 percent to 18 percent.
The new rate which takes effect on August 2 is in response to further easing by Bank of Uganda, according to Stanbic Bank Chief Executive Officer, Patrick Mweheire.
The reduction comes at a time when commercial banks are struggling with Non Performing Loans (NPLs) amid persistent sluggishness in the economy.
“It is a commitment we made that whenever the CBR goes down, we go down too. We will match on the way up and on the way down,” Mweheire told ChimpReports in an interview on Saturday.
He said Stanbic took the decision in anticipation that the rest of the banks whose lending rates averaged at 20.5 percent in April follow the example and ease.
This is the seventh time in a row that the bank has slashed its rates along with the Central Bank.
“Interest rates are really high. People misunderstand banks thinking we enjoy when the rates are high but we really don’t. Because once they go high, the NPLs react similarly,” Mweheire said.
He argued that it makes much business sense for commercial banks to lend at an affordable rate than to have bad loans accumulate.
“I would rather see rates go down to 15 and then NPLs go to 1. It’s better than NPLs at 10 with your rates at 30.”
In effect, Mweheire projects that demand for private sector credit will pick up.
The latest statistics by Uganda Bureau of Statistics forecast that Uganda’s economy would grow by 3.9 percent in the fiscal year 2016/17, a 0.8 percent decline from 2015/16.
This slowdown has been driven by a weak growth in private sector credit, effects of drought and slow implementation of public investment projects.