Credit crisis will affect Uganda- Mutebile

Credit crisis will affect Uganda- Mutebile

Tom Magumba
Kampala

The unfolding global financial crisis will affect Uganda, Bank of Uganda (BoU) Governor Tumusiime Mutebile has said. This is the first time the governor has admitted that like many other economies, Uganda was exposed to this global danger. “All along I have been misquoted by the media about this. I have never said Uganda will not be affected by the credit crisis,” he said.

Mr Mutebile made the remarks while responding to a presentation by Mr Peter Kibowa, a financial consultant, on how the credit crunch would affect Uganda at a ceremony where Finance Minister Ezra Suruma was recognised as 2009 Banker’s finance minister for Africa on Monday.

Mr Mutebile said the crisis had unfolded over time starting with the banks in America that gave subprime loans because the value of housing was on the raise and when the prices fell, borrowers failed to pay back.

A subprime loan is that offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

Mr Mutebile said Ugandan banks were only involved in traditional banking not offering subprime mortgages and BoU’s focus on risk-based management had taken the credit edge off Ugandan banks. “Our banks remained well capitalised with an average ratio of liquid assets to deposits of 51 per cent and we do not have so many assets in foreign exchange, ” Mr Mutebile said.

He, however, said the crisis has meant that banks are not lending to each other to be able to transact business. This, he said, implies that they (banks) would not lend to real economies and this would inevitably stall economic development.

Mr Mutebile’s remarks come a month after the governor and Prime Minister Appollo Nsibambi assured Parliament that Uganda would not be affected by the credit crisis. A financial analyst who preferred not to speak on record given the sensitivity of the matter, said the crisis was already creeping in on the banks. “Banks here are already lending to each other at very high interest rates which may spill over to borrowers failing to pay,” he said in an interview on February 10.

According to the analyst there was no calendar Treasury bills auction last week due to what BoU described as unfavourable liquidity situation prevailing in the country. However, there was a two Year Treasury bond Auction on February 4 where the rate significantly edged up from 14.1 percent to 18.6 per cent.