In a bid to support monetary policy operations and keep interbank intrest rates within the Central Bank rate Band, Bank of Uganda (BoU) has approved the creation of a Standing Lending Facility/ window at the Central Bank for banks with short term liquidity
In a notice dated 7th September, detailing the guidelines for the establishment of the facility, Bank of Uganda says the facility is for purposes of providing liquidity during normal times separate from the Lombard facility/lender of last resort, which is intended for banks in liquidity distress requiring funds for a longer duration of time.
According to the Central Bank, the eligible institutions for the facility shall be institutions subject to reserve requirement, that is to say, Tier one Commercial Banks.
In Uganda, Tier one Commercial Banks include; Stanbic Bank, Standard Chartered Bank, Absa Bank, Centenary Bank, dfcu Bank, Bank of Baroda and Citibank, among others.
Bank of Uganda also maintains that all the approved guidelines can be changed by the Central Bank as and when deemed necessary adding that any change shall be communicated to all banks immediately it happens.
On e of the key guidelines by the Central Bank show that access to the facility shall be at the initiative of the commercial banks that require liquidity. However, BoU says it reserves the right to set terms, conditions and limits that a bank can access.
BoU also notes that all applications for borrowing from the Central Bank should be addressed to the Executive Director Operations copied to the Director Financial Markets Department. BoU says the time schedule for receiving the application at the Central Bank should be by 3pm of the business time in order to allow for processing of funds before close of RTGS at 4PM while Settlement of funds is done on the same day as the day on which the application is received.
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On the tenor of the Standing Lending Rate Facility/ window, BOU say this will shall range from overnight to 7 days, with the option of rolling it over for a maximum of 7 days, providing the Maturity date is Thursday . The rate at the time of rollover shall be based on the prevailing CBR at the time.
Circumstances under which BOU shall limit access to the Standing Lending Facility
On regular and continuous access to the facility, BoU says that in the event this practice is observed, such a bank shall be placed under intensive supervision by the supervision directorate.
In circumstances where the request for the facility is rejected, BoU says the Executive Director Operations shall inform the applicant bank by email or in a formal letter.
Meanwhile, on the date of expiry of the facility, the central bank says the Commercial bank Clearing Account at the Bank of Uganda shall be debited with the principle amount borrowed and the interest accrued.
