Bank of Uganda Announces Reforms to The Primary Dealership System

Governor Bank of Uganda Emmanuel Tumusiime-Mutebile

Bank of Uganda has announced new reforms with an aim to increase efficiency and enhance liquidity in the financial market. This has been done in collaboration with the Ministry of Finance, Planning, and Economic Development.

The Reforms were announced on Monday by Governor Emmanuel Tumusiime-Mutebile and they target primary dealership markets. They include automation of the auction processes to enhance efficiency and price transparency.

“This is a move to strengthen the country’s ability to withstand exogenous shocks to the economy. Offshore investors would be more assured of stability in prices as opposed to the expectation of heightened volatility in the markets,” Prof. Mutebile 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,” Prof. Mutebile added.

Prof. Mutebile notes that in FY 2019/20, the turnover in the secondary market was recorded at 41 percent of the total outstanding stock of Government securities. This means that 59 percent 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.

“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.

Effective October 01, 2020, competitive bidding in the primary market for Government securities shall be limited to only Primary Dealer Banks. This is to enhance liquidity in the secondary market.

 After an evaluation process that started early this year, ABSA Bank,  Bank of Baroda, Centenary Bank, DFCU Bank, Housing Finance Bank, Stanbic Bank, and Standard Chartered Bank Bank have been ring-fenced by the Central Bank as primary dealer banks for a period of three years.

“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,” Prof. Mutebile said.

Prof. Mutebile encouraged Investors to 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 UGX 200 million).

However, for competitive bids 3 (those above UGX 200 million), Non-Primary Dealer Banks will access government securities from the Primary Dealer Banks in the secondary market.

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