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Uganda: Covid-19 Shocks Push Banks Into Emergency Borrowing

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Cash borrowed by industrial banks from Financial institution of Uganda (BoU) to shore up operations and shortages attributable to Covid-19, has elevated by Shs45b within the quarter ended April, in keeping with particulars from the Central Financial institution.

Knowledge contained within the June Financial institution of Uganda Financial Coverage Assertion, signifies that industrial banks have up to now borrowed Shs155b from emergency provisions up from Shs90b for the interval ended September 2020.

The cash, amongst others, seeks to shore up industrial financial institution operations which are going through liquidity and useful challenges.

Nonetheless, the Central Financial institution doesn’t provide particulars of which banks have accessed the funds or how a lot was lent out to respective banks.

In September 2020, in its Monetary Stability Assessment for the interval ended June final yr, the Central Financial institution mentioned three banks, which it didn’t title, had sought funding of as much as Shs60b from the Covid-19 Distinctive Liquidity Help Facility and the Lombard Window to shore up their operations.

The 2 services have since April 2020 been utilized by Financial institution of Uganda to offer emergency funding to banking establishments which have had challenges as a result of Covid-19-related shocks.

In April final yr, the Central Financial institution established emergency liquidity help measures, by which it sought to shore up capital and funding gaps amongst some supervised monetary establishments whose operations had been affected by Covid-19.

In notes printed within the June 2021 Financial Coverage Assertion, Financial institution of Uganda Governor Emmanuel Tumusiime Mutebile, mentioned the liquidity assist measures search to stabilise market operations, noting that the assist had helped to stabilise bank-to-bank rates of interest that had been threatened by Covid-19 associated shocks.

Interbank charges, which is the curiosity charged on short-term loans between banks, had remained broadly steady, and anchored across the Central Financial institution Fee (CBR) within the quarter to Might 2021, which has now been diminished to the bottom ever – 6.5 per cent – because it was launched in 2011.

As an example, the Central Financial institution mentioned, the seven-day interbank price had remained steady, averaging at 7.three per cent over the interval with stability famous in all short-term cash market charges in the course of the quarter ended April.

The Central Financial institution has since April 2020, put in place measures, amongst them discount of the CBR as a method of supporting the financial system to resist Covid-19-related shocks and inspiring industrial banks to lend out cash to the non-public sector at affordable charges.