Overview:
Data from the Bank of Uganda (BoU) shows that interest rates on shilling-denominated loans have risen steadily, from 17.7% in April 2025 and 19.1% in July, reflecting banks’ heightened risk perceptions despite the Central Bank Rate (CBR) remaining at 9.75% since August 2024.
KAMPALA: Commercial banks in Uganda have increased their average base lending rates to around 21% per annum as of October 2025, raising concerns about the impact on private sector credit growth.
Data from the Bank of Uganda (BoU) shows that interest rates on shilling-denominated loans have risen steadily, from 17.7% in April 2025 and 19.1% in July, reflecting banks’ heightened risk perceptions despite the Central Bank Rate (CBR) remaining at 9.75% since August 2024. Foreign currency loans also edged up to 8.5% from 8.3% over the same period.
At Stanbic Bank Uganda, the country’s largest lender, prime lending rates now stand at 19.75%, with some products offered at 16%. Sectoral analysis shows that manufacturing, trade, transport, and personal loans experienced the highest increases, while housing and agriculture saw modest declines.
The rate hikes come despite BoU’s earlier projections, which anticipated easing lending rates due to stable macroeconomic conditions, robust liquidity, and a stronger shilling. Analysts, however, warn that sector-specific risks, rising government borrowing, and global financial volatility could offset potential declines.
Private Sector Credit (PSC) continues to expand, demonstrating resilience amid tighter lending conditions. Annualized PSC growth rose to 9.7% in the three months to July 2025, up from 9.0% in the previous quarter. Shilling-denominated loans grew by 11.2%, and foreign currency loans rose by 5.5%.
The BoU attributed the growth to stronger borrower demand, improved loan approval rates (up to 70.1%), and declining non-performing loans (3.7% in June from 4.2% in March 2025). Credit demand increased to UGX 8 trillion, while net supply expanded to 5.6 trillion. However, net credit extensions contracted by UGX 300 billion in Q1 FY2025/26, mainly due to lower foreign currency disbursements.
Looking ahead, the BoU expects credit growth to continue rising, supported by macroeconomic stability, prudent monetary policy, and financial sector reforms. Measures include digital and agency banking expansion, improved credit infrastructure, ESG-aligned lending frameworks, and government credit schemes.
The central bank also highlighted longer-term financing initiatives such as green bonds, Islamic Sukuk, diaspora bonds, and the upcoming Mortgage Refinancing Bill, which is expected to extend repayment periods and gradually reduce interest rates.
BoU maintains that sustainable credit expansion is vital to Vision 2040, targeting a tenfold increase in Uganda’s GDP and growth of private sector credit from UGX 26.8 trillion in July 2025 to UGX 260 trillion by 2040.