KAMPALA: Uganda’s banking sector gets a trading platform that is aimed at easing and boosting trading between commercial banks and covering the risks of the transactions.
The platform, named TradeClear, is an interbank trading initiative managed by Dutch-based financial markets development company Frontclear. It is regulated by the Bank of Uganda and overseen by the Uganda Bankers Association’s Treasurers Forum.
The Ugandan interbank market has been limited to the top players because they never wanted the risk of dealing with smaller banks. This in turn affected the level of credit the smaller banks could extend to their customers and therefore kept lending levels low and interest rates high.
“TradeClear Uganda is expected to dislodge the logjam of market segmentation in the interbank money market.” This umbrella guarantee facility will cover the risk of interbank defaults. If a borrowing bank fails to pay the lender in a secured transaction, “Frontclear will stand ready to pay back the funds advanced by the lender,” Deputy Governor Michael Atingi-Ego said.
He says that because of the big gap between the bigger banks and the smaller ones in terms of working capital and assets, the smaller banks lacked adequate sources of money for onward lending to their customers.
For a long time, some players in the local interbank money market have been relegated to fishing in shallow waters, while others haul in the big catches from deep waters. The existence of counterparty credit limits, which were set at zero in some cases, has constrained the fluid flow of liquidity among banks, “the Deputy Governor said.
Participation in the TradeClear program is voluntary and based on the informed assessment and judgement of the participating financial institutions. 15 of the 23 banks in the country have now signed onto the TradeClear platform to ease and boost interbank trade within the country.
FrontClear Chief Executive Officer Philip Buyskes says he is hopeful more banks will join in.
BoU and Frontclear undertook to work together by signing a Memorandum of Understanding (MoU) to support the development of the interbank market in Uganda in 2019. The Memorandum between the banks and the developer prioritized three key areas, including a legal and regulatory review on how to enforce the International Swaps and Derivatives Agreement and the Global Master Repurchase Agreement, two key agreements in the inter-bank business.
The other priority area was piloting a money market development framework diagnostic tool and TradeClear—Frontclear’s umbrella guarantee product in Uganda. Charles Katongole from the Treasurers Forum of the Uganda Bankers’ Association urged other commercial banks to embrace the platform, saying that it has the benefits of improving liquidity and more efficient management of capital.
I & M, one of the smaller commercial banks, welcomes the development, which should enable them to offer more competitive pricing and product solutions to their clients, according to the bank’s Executive Director, Sam Ntulume. “Our customers will benefit from more specialised treasury solutions for their investments,” he said.
Other banks that have signed up to the platform include Standard Chartered Bank, Stanbic Bank, Centenary Bank, Absa, Housing Finance, ABC Capital, Finance Trust Bank, Dfcu, and Exim Bank.
The benefits of participation will accrue directly to the eligible institutions, to the market through the increased vibrancy of interbank trading, and ultimately to the central bank through the smoother transmission of policy signals to the real economy.
FrontClear is largely a European multinational company, with shareholders including governments there.
Deputy Governor Atingi-Ego says the development helps all the three stakeholders in the financial sector; the bankers, the regulator, and the consumer or customer.
“I am especially pleased that TradeClear will facilitate the development of a deeper and more inclusive interbank market where the phrase “Duc in Altum” (launch in the deep) covers the transactions of all players regardless of their inherent size,” he says.