Standard Chartered Bank Uganda Limited has been announced as the best performing Primary Dealer Market Maker (PDMM) in Uganda Government securities during the period October 2020 to September 2021.
The announcement was made by Dr. Michael Atingi-Ego, Bank of Uganda (BOU) Deputy Governor, during the 1st Annual Award Event to Recognise the Best Performing PDMM) in the Uganda on Wednesday.
“Congratulations to you [Mr. Albert Saltson CEO/Managing Director, Standard Chartered Bank Uganda] and your Financial Markets team,” said Dr Atingi-Ego.
He said that the BOU established a system that evaluates the performance of each PDMM bank based on various criteria, with the objective of identifying the best PDMM and facilitating competition among the PDMM banks.
“This competition we believe will lead to more efficiency in the system and better services to clients.”
Dr. Atingi-Ego said that initially, the BOU launched the Primary Dealer (PD) System in 2005 with the objectives – to promote participation in the government securities markets, foster the development of financial markets, improve the secondary market trading system and to enhance Government securities market efficiency and operations.
“As part of our commitment to further develop the Government securities market and the financial market, we launched reforms to the PD System in 2016. The objective is to develop the secondary market which will provide an enabling environment to raise capital as well as provide benchmark pricing for other private sector assets classes including loans, corporate bonds, among others,” he said.
The reforms, he revealed culminated in the Bank of Uganda appointing seven commercial banks in October 2020 to be the PDMMs for a period of three years.
“This aligned our financial market with international best practice and our market is now amongst a handful of African countries with a functional PD system. As of October, last year, United Bank for Africa was appointed as the eighth PDMM.”
The Deputy Governor applauded the PDMMs for mobilizing over UGX 12.0 trillion in the scheduled calendar auctions, in the primary market, during the period October 2020 to September 2021, saying that also, an additional UGX 1.4 trillion was raised through private placement auctions.
In the secondary market, the Deputy Governor revealed that UGX 42.71 trillion was transacted during the same period, compared to UGX 10.9 trillion before the PDMM system.
“This is an increase of 288.9%,” he said.
He said that the Bank of Uganda conducted an evaluation of the first year of the PDMM system – in which they analysed timeseries data of the primary and secondary market performance.
The Deputy Governor presented the results as follows;
How Ecobank is Betting on Inclusive, Tech-Powered Learning in Ugandaa) There is an uptrend in the bid-to-cover ratio – implying improvement in the primary market activity. Bid-to-cover ratios rose to 2.1 from 1.6, previously.
b) Monthly secondary market activity is on average 2.9 times the monthly issuance compared to 1.1 times, previously.
c) The secondary market annual turnover ratio was 156% – meaning that annual traded volumes are 1.56 times the outstanding stock. Previously, the turnover ratio was 54%.
d) The yield between the secondary market and primary market yields is lower and the spreads are narrower, reflecting declining transaction costs.
e) There is more competition in the monthly evaluation of the best performing PDMM, with more banks emerging best performer.
f) And lastly, there is increased use of the horizontal repo by banks to meet daily liquidity obligations.
He said that Central Bank has open communication lines with the PDMMs to not only improve the PDMM system but also to develop our financial market.
“I was made aware that the PDMM Association had a physical meeting with the Permanent Secretary/Secretary to the Treasury and a discussion was conducted at the Ministry of Finance headquarters in the presence of our Financial Markets Department.”
“The Bank welcomes such initiatives given that we recognize that improved relations between the market makers and the issuer have the potential to lower Government securities yields and in turn form a synchronized yield curve across all the tenors, in line with the Central Bank Rate and thus lower commercial bank lending rates and development of the corporate debt market,” he added.
Dr. Atingi-Ego said that the Bank is prioritizing global visibility of Government securities and therefore PDMMs need to comply with the obligation to post two-way prices at all times =during trading hours.
“This will enable us to join the Bloomberg African Bond Indices (ABABI). The African Development Bank administers the ABABI, a family of African bond indices launched in 2015 and calculated independently by Bloomberg. Frontier and emerging market indices, such as the ABABI, the FTSE Frontier Market Index, and the JP Morgan Emerging Market index, among others, are a reliable tool for international investors to measure and track our bond market while providing us with opportunities to diversify our funding instruments, boost transparency and widen our investor base.”
He also revealed that the Bank is in advanced stages to ensure that the financial markets can conduct borrowing and lending of securities, saying that they are optimistic will improve on liquidity in the various tenors of the yield curve but also modernise our financial market and attract more global and domestic investors.
He lauded the contribution of all the commercial banks towards the development of the Government securities market.
