The Governor of Bank of Uganda Emmanuel Tumusiime-Mutebile has announced seven banks that will handle competitive bidding in the primary market for government securities.
This was part of the reforms done by the Bank of Uganda in collaboration with the Ministry of Finance, Planning and Economic Development to increase efficiency and enhance liquidity in the financial market. The primary dealer banks have been appointed for a period of three years.
The appointed banks include; ABSA Bank, Bank of Baroda, Centenary Bank, DFCU Bank, Housing Finance Bank, Stanbic Bank, and Standard Chartered Bank.
The reforms have in part included automation of the auction processes to enhance efficiency and price transparency, which has increased the global visibility of Uganda’s financial markets.
“In order to enhance liquidity in the secondary market, effective October 01, 2020, competitive bidding in the primary market for government securities shall be limited to only Primary Dealer Banks,” he said.
According to Mutebile, the reforms have been successful in promoting a vibrant primary market, challenges nonetheless remain in the secondary market, as the trades have remained persistently low. In FY 2019/20, the turnover in the secondary market was recorded at 41 per cent of the total outstanding stock of government securities.
“This means that 59 per cent of the total outstanding stock of government securities was not traded at all, and was simply held till maturity. This is quite low compared to say, South Africa, where secondary market turnover amounts to 1,200 percent of the total outstanding stock of government securities. This means that in South Africa, the total outstanding stock of government securities changes hands 12 times in a year, which substantially increases liquidity in the market,” he said.
He said the increased liquidity of the government securities market enhances the attractiveness of the securities as it facilitates the ease of entry and exit into the financial market. It also strengthens a country’s ability to withstand exogenous shocks to the economy, as offshore investors would be more assured of stability in prices as opposed to the expectation of heightened volatility in liquid markets.
He said Investors should continue submitting their bids to their respective commercial banks as usual, where they will be well served.
All commercial banks will continue to access the primary market for non- competitive bids (below Shs200 million). However, for competitive bids (those above Shs200 million), Non-Primary Dealer Banks will access government securities from the Primary Dealer Banks in the secondary market.
“I would like to take this opportunity to congratulate the new Primary Dealer Banks and to say that the Bank of Uganda looks forward to a more vibrant secondary market for Government securities in Uganda.”
