Banks continue to hold largest share in govt securities
Banks have, over the years, reduced private sector lending due to heightened fears of default. Photo / File
What you need to know:
- Financial institutions have, in the last five years, reduced private sector lending, which is considered risky
Commercial banks continued to be the largest holders of government securities - treasury bills and bonds - signaling a shift to low risk investments.
Financial institutions have, in the last five years, reduced private sector lending, which is considered risky.
Details contained in the Ministry of Finance Debt Statistical Bulletin and Public Debt Portfolio Analysis indicate that banks hold 29.3 percent of government securities valued at Shs15.5 trillion.
They are followed by pension and provident funds, with a holding of 25.1 percent valued at Shs13.3 trillion, while Bank of Uganda holds 17.9 percent or (Shs9.5 trillion).
Other financial institutions hold 9.6 percent valued at Shs5.08 trillion, while offshore investors and others hold 5.9 percent (Shs3.12 trillion) and 5.6 percent (Shs2.9 trillion), respectively.
Retail investors hold 5 percent, valued at Shs2.6 trillion, while insurance companies hold 1.7 percent, which is valued at Shs902.9b.
Government, through Bank of Uganda, issues different treasury bills with varying interest rates ranging from 10 percent to 14 percent.
The Central Bank also issues longer-term debt instruments through bonds with interest rates that range from 15 percent to 17.5 percent. Ministry of Finance data shows that, whereas the concentration of securities holdings has remained skewed to commercial banks and pension, there has been a significant increase in the Bank of Uganda holdings due to disbursement of Shs7.7 trillion appropriated in the 2024/25 budget.
However, data also noted that the issuance of treasury bills declined by 51 percent from Shs2.6 trillion to Shs1.4 trillion, while issuance of bonds rose by 236 percent from Shs3.1 trillion to Shs10.6 trillion.
Commercial banks have, over the years, increased their investment in government securities, from which they have also recorded some good returns and have been key in insulating the sector against high-risk investments.
Mr Charles Mudiwa, the dfcu chief executive officer, said recently while presenting the bank’s financial results that besides the various financial services, they had seen an increase in investment in government securities during 2024 as a way of spreading their risks.
Secretary to Treasury Ramathan Ggoobi has previously said that government had increased its domestic borrowing to cut back on expensive credit due to a reduction in sources of non-concessional borrowing.
Because the cost of debt servicing was increasing, government was seeking to reduce expensive loans by tapping into other debt sources.
Securities holdings as of December 2024
Investors | Stake |
Commercial banks | 29.3% |
Pension and provident funds | 25.1% |
Bank of Uganda | 17.9% |
Other financial institutions | 9.6% |
Offshore investors | 5.9% |
Others | 5.6% |
Retail investors | 5% |
Insurance companies | 1.7% |
