The quarterly bank lending survey conducted by the Statistics Department of Bank of Uganda indicates that Commercial banks will maintain their price terms and conditions with a bias towards easing for average loans and prime borrowers and tightening for riskier loans in the quarter to December 2020.
The survey which was conducted in 24 commercial banks and nine non bank deposit-taking financial institutions in Uganda indicate that majority of the banks (77.0%) expect their lending rates to remain largely unchanged, 23.0 per cent expect the rates to decrease, while no bank expects the rates to increase over the next quarter to December 2020.
“The lending rate is anticipated to decrease on average by 0.25 percentage points, over the quarter to December 2020. Banks that anticipated their lending rates to decrease attributed it to the continued low CBR, reduction in the cost of funding, and the need to lower prime rates due to competition among financial institutions for prime borrowers.” the survey indicated
The demand for loans by enterprises and households is expected to increase in the quarter to December 2020 than was anticipated in the previous survey results, due to higher demand for loans from SME and households.
As regards non-price terms and conditions, banks expect to keep non-interest rate charges and maturity period largely unchanged with a bias towards easing for 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.
According to the survey, default rate on loans to enterprises and households is expected increase due to the negative impact of the Covid-19 pandemic on the business activities, employment and incomes of firms and households.