COVID-19 reduces bank lending in East Africa

Central banks in East Africa have been reducing interest rates to encourage businesses to borrow.

Kenyan shillings

However, this strategy does not seem to be working.

Most companies are not taking loans from the banks due to the economic effects of COVID-19 across the region and the world as a whole.

The slowdown in economic activity is mainly caused by the restrictions and measures put in place to curb the spread of the COVID-19 pandemic.

Measures such as closing borders, banning buses and cars, as well as overnight curfews, have limited the spending of consumers thereby hitting businesses hard.

Reports show that the demand for credit from the banking sector in East Africa by the private sector has reduced since the onset of the pandemic.

The Central banks have reduced interest rates, to make borrowing cheaper and to encourage people to take loans for investments that would boost the economy.

Kenya and Uganda have reduced their benchmark rates to 7% while Rwanda's central bank has pushed its key lending rate down to 4.5%.

However, the value of loans issued by banks in Uganda, between March and April declined than more than two thirds to $132,000.

Banks in East Africa are literally having the cash but their usual profitable business of issuing loans has stalled

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