Friday, February 17, 2017

#MoneySense - will #Uganda default? @DailyMonitor

I had a conversation with Denis the menace.

Denis is an accountant so our conversations are charged with numbers.  Today he asked me what the Central Bank Rate has anything with commercial bank lending. He got answers.

Below is what we discussed. There is more but it is none of you bizwaks.

He recently attended a conference where the leader asked the main speaker had asked the 200 people if any country has ever defaulted.  He gave a great answer. ARGENTINA. Denis is meticulous. I had shared the story of how Argentina defaulted. He also knows my jokes about the PIGS (Portugal, Italy, Greece and Spain) and austerity.

Most Ugandans (98%) do not read the fine print. Uganda is going to avoid defaulting because of China but there will be austerity.

[17/02, 10:46 a.m.] Wabuyi: Hello sister, can you please assist and tell me something about the Central Bank Rate.

What does it have to do with bank lending rates and what is its implications on the commercial banks.

Thank you
[17/02, 11:39 a.m.] Martha Leah Nangalama: Banks borrow money from the central bank. They pay the rate set by the central bank. Then they turn around and lend to clients at a higher rate so that they earn profit. So when the CB rate goes down, the rate at your bank should also go down but do not expect it to go down by the same percentage point.

[17/02, 11:42 a.m.] Wabuyi: Okay, but what makes banks borrow from the central Bank and yet they have to remit reserves. Why can't they retain the money they remit as reserve?

But I know it is for regulatory purposes

[17/02, 11:45 a.m.] Martha Leah Nangalama: Most banks do not have cash on hand.

[17/02, 11:48 a.m.] Martha Leah Nangalama: If a client walks in and borrows sh.5B to buy construction material, that one person can drain all the cash on hand.  So the bank needs access to liquidity. All countries work like that. What is abnormal in Uganda is the commercial rate. As high as 30% is unreal.

[17/02, 12:06 p.m.] Wabuyi: Next thing is gonna be Treasury Bonds

[17/02, 12:12 p.m.] Martha Leah Nangalama: Bonds are normally issued by governments or municipalities. I do not think in Uganda anyone apart from the government issues bonds. It would concern me if they did.

[17/02, 12:13 p.m.] Wabuyi: Government sells bonds and NSSF has bought a lot of these. It is the highest bond holder!

[17/02, 12:14 p.m.] Martha Leah Nangalama: Okay. But that is a conflict of interest.

[17/02, 12:14 p.m.] Martha Leah Nangalama: OMG. They are reaping people off. Soon.

[17/02, 12:15 p.m.] Wabuyi: Am afraid, we may lose that money in case government defaults which is likely!

[17/02, 12:17 p.m.] Martha Leah Nangalama: It is not in case. It is when.

[17/02, 12:18 p.m.] Wabuyi: Of the 11 trillion these guys have collected,  over 78% has been lent to government,
[17/02, 12:18 p.m.] Wabuyi: Sorry 68%

[17/02, 12:19 p.m.] Martha Leah Nangalama: Finch and also Moody's rated Uganda debt junk in 2014 and 2015. Means too risky to lend to. Also too risky to buy their bonds. I tried to explain to Uganda but they were too busy abusing me for campaigning for Mbabazi who is gay like me and Obama.

[17/02, 12:20 p.m.] Martha Leah Nangalama: But the intellectual level of some people makes me wonder if they did not buy their degrees.  I should have known when they laughed at my free money. 😂😂😳

[17/02, 12:21 p.m.] Martha Leah Nangalama: Reason you see all the borrowing from China. Even when Uganda defaults, China gets their money. They already have their collateral.

[17/02, 12:23 p.m.] Wabuyi: borrowing to service loans is financial indiscipline. What went wrong?

[17/02, 12:23 p.m.] Wabuyi: Does America do the same at times?

Martha Leah Nangalama
Moncton, Canada
I have an IT and business back ground

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