Bank of Uganda projects increased lending to private sector
Decline in interest rates of government securities and CBR will increase lending to private sector.Following the consistent decline in interest rates on government securities and the Central Bank Rate (CBR), the Bank of Uganda (BoU) has estimated that commercial banks will increase lending to private sector. The 2015/16 Financial Stability Report released on January 2 showed that the lending rate to government increased at an accelerated pace more than to the private sector due to higher returns on government securities and high risk attached to lending to private sector. The report states that "during the year to June 2016, banks increased their holdings of government securities by 15.9 percent up from 6.1 percent while lending grew by 3.7 percent compared to 19.7 percent, reflecting a shift from riskier assets to safer assets driven by the decline in asset quality." Moreover, the significant portion of non-performing loans (NPLs) from the private sector contributed to increased lending to government all through 2016. "The downshift in banks' lending was witnessed across all sectors of the economy, except for personal loans. This partly reflects the slowdown of economic activity coupled with banks reduction in lending in light of rising nonperforming loans (NPLs)," states the report. However, as the interest rate of government securities and CBR continue to decline, lending rate to the private sector is expected to increase.