Uganda shields its financial stability amid Coronavirus, but risks remain
Uganda has so far succeeded in safeguarding financial stability, although risks remain as the east African country battles the economic effects brought about by the ongoing COVID-19 pandemic, according to a recent report by Uganda’s central Bank.
Decisive monetary and macro-prudential policies have reduced short-term risks to financial stability, said the financial stability report for the third quarter by the Bank of Uganda (BOU).
The report issued Monday showed that since June, the central bank has maintained an accommodative monetary policy stance, with its rate maintained at 7.0 percent. This has continued to support loan repayments and private sector credit growth.
Through the quarter, liquidity conditions in the banking system continued to improve, partly supported by the BOU’s policies and strong growth in deposits.
The cost of borrowing in the money markets has been reduced, with the weighted average interbank seven-day and overnight rates reduced to 7.3 percent and 6.8 percent in September, from 10.2 percent and 8.7 percent in the same period last year, respectively.
In addition, offshore investor inflows into the domestic financial markets continued to grow, enhancing the availability of funding for banks and supporting the Ugandan shilling’s stability.
Offshore investors’ total assets in the banking system rose to 1.6 trillion shillings (438.4 million U.S. dollars) in September, from 1.4 trillion shillings (383.6 million dollars) at the end of May.
This reversed the trend of outflows that was experienced in March and April at the height of the uncertainty and risk aversion in global financial markets.
Banks also experienced growth in liquidity assets, which was largely supported by the rising investment in government securities amid low credit growth and a pickup in deposit growth. The buildup of liquid assets, according to the report, resulted in an improvement in the resilience of the banking sector to systemic liquidity risk.
