By Edwin Muhumuza
Uganda Development Bank (UDB) ranks ‘B+’ according to the latest credit rating by Fitch, a top international credit rating agency.
A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.
The state owned development Bank and its issuer default ratings are driven by its support rating floor of ‘4’ and ‘B+’, respectively, which reflects Fitch’s view of a high propensity of government to support the bank when need arises especially due to its policy of financing Uganda’s priority areas, full-state ownership, significant funding guarantees and ordinary capital contributions from the state.
The managing Director, UDB, Patricia Ojangole notes that they intend to use the credit rating to increase funders’ confidence in the bank and thereby increase the banks chances of raising capital.
Currently the authorized capital contribution to the bank stands at shs.500 billion but so far government has put in 274 billion shillings, Ojangole said.
The head of Risk and Compliance Moses Ebitu, said the credit rating is good in that it raises the horizon of borrowing but also lowers the cost of borrowing which translates to the cost of facilities they offer and so they look to borrow from multinationals and then extend it to clients.
‘This rating speaks to a lot of things, a combination of different factors including how the bank is run and managed. Regardless of how good UDB may be, they can only be ranked to the extent of the support that government offers.’added Ebitu.
The bank has operations covering the entire country but without retail branches because they finance their own operations without government support for operating costs according to the officials.Government had committed to fund the bank up to 2022 but they hope that government fast tracks funding before then.
‘When the bank’s capital base significantly increases then they will be able to increase their nation-wide reach with time, and Ugandans will be able to access the money they want’, according to Ojangole.
Fitch Ratings of B+ on Uganda. cites the country’s high levels of infrastructure spending and its sound macroeconomic policy framework and a stable outlook on Uganda.
The Bank continues to focus on agriculture; the entire value chain, manufacturing, tourism, human capital development that is health and education plus infrastructure development