| KAMPALA, Sept 14
KAMPALA, Sept 14 Uganda's central bank is
opposed to capping commercial lending rates in the way Kenya has
because it could halt lending to smaller firms deemed more risky
or encourage banks to lend in foreign currency where the caps
don't apply, a top official said on Wednesday.
Kenya passed a law last month capping commercial interest
rates at 400 basis points over the central bank's policy rate,
now 10.5 percent, sending bank shares tumbling. Banks were due
to meet the requirement by Wednesday.
Many people in Kenya, Uganda and across Africa have long
complained that commercial lending rates are too high, holding
back personal and corporate investment. But some experts say
capping rates will make banks less willing to lend, on the basis
that their interest income would not offset risks.
Adam Mugume, executive director for research at the Bank of
Uganda, told Reuters that introducing interest rate control
would deter banks from lending to small-scale retailers or
offering mortgages, both deemed riskier segments.
"How will banks price risk? ... Those risky borrowers will
go off the credit market," he said, although he said commercial
lending rates were too high and represented a "market failure."
According to Bank of Uganda data, commercial banks' weighted
average lending rate on shilling loans stood at 23.5 percent in
August, down from 24.6 percent in December last year.
Last month, Uganda's central bank cut its benchmark Central
Bank Rate (CBR) to 14 percent from 15 percent, its third cut
since April. But businesses still complain about high commercial
But Mugume said controlling lending rates on shillings could
prompt banks to offer loans denominated in foreign exchange,
which in turn could put pressure on the shilling as demand for
foreign exchange rose.
"You're causing more harm ... If you don't think carefully
it can kill the financial sector," he said, adding that the
government should identify key sectors struggling under higher
rates, such as small businesses, and offer targeted support.
Uganda's financial services sector has expanded from the
doldrums of 1980s and early 1990s as growth has picked up. Total
assets stood at 21.7 trillion shillings ($6.42 billion) at the
end of 2015, compared with 7.5 trillion shillings in 2008.
($1 = 3,378.0000 Ugandan shillings)
(Editing by Edmund Blair)