Uganda Development Bank limited (UDB) will be feeling sorry if their customers seek for an optional bank, as they continue to express their grievances following the high lending rates that seem not to be coming down…yet.
The country’s only development bank is facing a challenge as the customers have likened their financial institution’s lending rate as those of commercial banks.
On average, the bank’s interest rates have remained between 10 and 15 per cent over the last three years.
“When we compare UDB’s rates to those of other development banks in the region, our rates are still the highest,” one customer said during the UDB customer engagement breakfast held at Hotel Africana last week.
Dr Samuel Sejjaka, the chairman board of directors at UDB, said: “Yes the interest rates of this bank are very high. They are not interest rates that are competitive internationally. We once visited kfw, a Germany government owned development bank, and we understand their rates were at 3 per cent.”
He explained that the reason the interest rates remain high is because of the issues of size and scale.
He said the governance issues of the bank vis a vis the capital available makes it difficult to follow all the governance requirement s and keep the interest rates low at the same time.
Mr Sejjaka said there are critical issues about policy in terms of how big the bank should be. “I think this bank should be larger than it is now because the people it services are the people who generate wealth and as such need access to cheaper credit,” he said.
He said expanding private sector credit will expand the economy and create more taxes and jobs.
Ms Patricia Ojangole, the chief executive officer of the bank, however, said the bank has not been capitalised enough to afford a much lower rate and as such has a high cost of doing business which affects the eventual rate charged.
She said in 2016 the bank was able to register close to Shs70b in new loan approvals mostly from manufacturing and trade.
The customers raised these queries citing Bank of Uganda (BoU)’s recent move to ease the Central Bank Rate (CBR) hoped that the development bank would pick a leaf and reduce rates for them. In the last one year, BoU has eased the CBR by 7 percentage points, whereas commercial bank interest rates have on average dropped by 4.71 percentage points.
Even as interest rates have been falling, quarterly growth in credit uptake as at April 2017 was 6.5 per cent, lower than the 9.5 per cent in the quarter to April 2016.
“Demand for credit (loan applications) remains robust while supply (loan approvals) remains subdued,” reads, in part, the Monetary Policy Report for June 2017.