Following last month’s announcement of a further reduction in the Central Bank Rate CBR by 100 basis points (1 percent) by the Bank of Uganda Governor Tumusiime Mutebile, Stanbic Bank has announced it will match the movement by reducing its prime lending rate from 23 percent to 22 percent effective October 1, 2016.
This is the third time in the last six months Stanbic bank has reduced its Prime Lending Rate in response to adjustments in the CBR.
“As we stated at the release of our half year financials last month, Stanbic is committed to maintaining the transparency of our pricing to our customers, this is the reason why we track movements of the CBR and revise our rates accordingly,” said Patrick Mweheire the Chief Executive of the Bank.
“We believe that the more affordable it is for our customers to pay back the money we lend to them for personal and business purposes the more value they will be able to create from their borrowings and the less likely they will be to default on their re-payments,” he added.
Officials say this has a positive effect on the overall economy and enhances domestic growth through stimulating private sector credit growth.
The Central Bank has been using moral suasion to sway commercial banks into reducing the spread between interest on deposits and loans but the results have not been any better.
Reading the 2015/16 budget Finance Minister Matia Kasaija said interest rates for borrowers remain high largely due to limited supply of long term capital in the economy due to absence of a savings mechanism to mobilize long term capital.
The second reason given by Kasaija was the risk profile of borrowers which remains high, as demonstrated by high default rates and non-performing loans in the past.
To address these constraints, said Kasaija, “Government is implementing, among others, the National Identification Project whose integration with financial systems will aid the verification of the creditworthiness of borrowers.”
David Walakira, a Budget Specialist with CSBAG recently said the prevailing high interest rates are detrimental to private sector investment due to the high cost of accessing capital for investment.
In the first half of the year Stanbic reported a commendable credit loss ratio of just 1.6 percent which is well below the industry average that currently stands at close to double figures.
“This is the result of the strength of our credit lending framework that have resulted in the strong quality of our loan book,” revealed Mweheire.
Talking about whether the bank is likely to further reduce its PLR again before the end of the year, Mweheire noted that the bank would continue to track any future changes to the CBR in line with the bank’s committed stance and any further drops in CBR would result in continued drops to the Stanbic’s PLR.