Q&A WITH UGANDA DEVELOPMENT BANK MANAGING DIRECTOR
You recently announced UDB's Fitch Rating score at apress briefing at your Head Office. Please tell us more about this and what it means for the institution and for your customers.
I will start by shedding some light on the work of Fitch Rating Inc. It is one of the top credit-rating agencies in the world, and is headquartered in New York City and London. Fitch conducts a comprehensive assessment of a participating institution against a common set of parameters, following from which, it assigns a credit rating. Investors use these credit ratings as a guide as to which investments will not default and subsequently yield a solid return. Fitch bases its ratings on factors, such as what kind of debt a company holds and how sensitive it is to systemic changes like interest rates.
A credit rating is therefore an assessment of the credit-worthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money i.e. an individual, corporation, state or provincial authority, or sovereign government.
For UDB, as is the case for many other Development Finance Institutions in the world, you will note that we are a non deposit-taking bank, unlike the commercial banks. We therefore get our funding through capitalization by our shareholder (Government of Uganda), borrowings from multi-lateral banks and institutions as well as from other debt markets.
This achievement is important to UDB for a number of reasons: Firstly, this credit rating will enable the Bank get funds at lower costs from the market; this will subsequently enable us to offer lower interest rates on loans and other financial instruments. The investors will accept low interest rates because they prefer low risk entities. Secondly, this credit rating opens up UDB to a wider audience of funding partners. We can approach financial institutions, multilateral banks and other investors with greater ease and confidence. This is because the credit ratings are easily understood by these financial institutions, multilaterals and a wide section of the public.
The rating greatly enhances our brand among the investors, customers, funders and our other stakeholders. It helps to boost confidence and credibility which is ultimately very good for business and supports growth and expansion; there is renewed confidence in the transparency of our lending practices because they are checked by an independent internationally recognized credit rating agency. Our customers will benefit from more affordable interest rates due to our favourable rating. CLICK HERE FOR MORE ON THIS Q&A