What you need to know:
Problem. Government blames the poor performance of the economy.
Kampala. Government is yet to deliver on a promise to recapitalise Uganda Development Bank (UDB).
This financial year, UDB will be recapitalised by Shs5b much lower than the mentioned Shs500b.
UDB got several mentions from the State-of-the-Nation Address and Budget Speech of 2015/16, with both indicating that the bank would be capitalised by Shs500b in the medium term.
The medium term is usually a term used to refer to a period of five to 10 years.
Dr Samuel Sejjaaka, the chairman UDB, while speaking at The Association of African Development Finance Institutions in Kampala yesterday, said government was paying lip-service to the bank.
“Government has really been ambivalent in terms of refinancing the bank. We have a very distrustful relationship because the government said they would give us Shs500b towards recapitalisation of the bank, which was mentioned in the State-of-the-Nation Address by the President and in the Budget Speech. When the Budget came out, there was only Shs5b, which has not yet been delivered,” said Dr Sejjaaka.
The recapitalisation of the bank would have boosted the ability of the bank to lend at lower interest rates than the prevailing market rate.
The Shs5b is just enough to cover the operating expenses of the bank. In 2014, UDB approved loans worth Shs36b, an amount far greater than the Shs5b capitalisation plan for the financial year.
“We are not doing well in terms of capitalisation and the government has not paid enough attention to the bank because we really resolved the issue of governance, but we have, maybe, failed to win back the confidence of the government,” Dr Sejjaaka added.
Speaking to Daily Monitor on the sidelines of the forum, Finance minister Matia Kasaija blamed the poor performance of the economy for low capitalisation.
“The economy is not doing well enough for us to give UDB the capitalization it requires. If it grows faster than this, maybe we shall increase the amount for the bank to be capitalised,” Kasaija said.
He said the money will probably have to be raised using international long-term financiers such as the Islamic Development Bank, African Development Bank, and Kuwait Special Fund, among others.
During the forum, Mr Kasaija also said there were still people who had borrowed money from UDB and failed to pay it back.
UDB, as at the end of 2014, had a non-performing loan ratio of 26 per cent, higher than the 4.6 per cent for the entire banking sector.
Mr Kasaija insisted that any development bank must be business oriented instead of being perceived as a charity organisation.
In February, government approved a request by Uganda Development Bank (UDB) to increase the institution’s financial capital from Shs100b to Shs500b.
The money, it was said, would allow the bank to offer loans for major infrastructural developments in key growth sectors of manufacturing, agriculture, extractive industries, and tourism, among others.
According to the bank’s chief executive officer Patricia Ojangole, the sectors are deemed to have a multiplier effect for both wealth and job creations.
UDB’s interest rate stands at 12.5 per cent for long term financing, 13 per cent medium and 14 per cent for short term loans which is cheaper compared to between 18 to 23 per cent charged by commercial banks.
The bank’s assets are projected to grow at an average annual rate of 36 per cent increasing from Shs198 billion in 2013 to Shs1.2 trillion by 2017.