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Uganda: Banks to Review Interest Rates

New Vision (Kampala)

Henry Mukasa

11 January 2012

Commercial banks have offered to review interest rates on old loans for clients which shot up after the Central bank hiked its lending rates to the financial institutions.

The Prime Minister, John Patrick Amama Mbabazi said that the measure is intended to save businesses from collapsing, secure properties given as collateral and also cater for salary earners whose income did not increase.

“They [banks] have taken cognizant of people with fixed incomes like teachers. Their salaries have not been increased,” Mbabazi said.

“In order to accommodate this position, they have offered to review interest rates on old loans or increase the payment period so that businesses don’t close or salary earners do not fail to meet their payment obligations.”

“As soon as Central Bank Rates (CBR) are reduced, they will also reduce lending rates across board [on old and existing loans],” the Premier added.

A cross-section of some of business people who held a dialogue with the Prime miniter and the bankers to reduce on the interest rates. PHOTO by Wilfred Sanya

He made the above remarks after a five-hour crisis meeting convened to avert a strike organized by Kampala City Traders Association (KACITA) on Tuesday. The meeting was attended by stakeholders from the banking sector led by the Central bank Governor Prof. Emmanuel Mutebile and representatives of the business community.

The traders are demanding that banks lower their interest rates so as to ease access to credit. They are also protesting the imposition of higher rates on old and new loans.

The surge in interest rates was a consequence of a decision taken by the Central bank to increase its lending rate to commercial banks from 13% in July last year to 23% in November last year and to-date.

Mutebile explained that the decision was informed by the need to mop up excess cash in circulation to check runaway inflation and cause stability to the exchange rate which had become volatile.

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