Banks’ foreign assets reduce by Shs15 billion

A trader counts money. The Shilling’s is expected to hold into this week. FILE PHOTO

By MARTIN LUTHER OKETCH

KAMPALA

Commercial banks’ foreign assets in dollars have reduced by $6 million (about Shs15 billion) due to the appreciation of the Uganda Shilling against the
United States dollar.

“Banks hold FX abroad for a range of reasons increasing settling of payments for their clients. If the customer demand is low, it reduces the need to hold more money but also the opportunity cost of holding it rises with appreciation pressures and the increase in domestic money market rates,” the executive director of research at Bank of Uganda (BoU), Dr Adam Mugume, said last week.

Since June to September 2013, the Uganda Shilling has registered a minimal appreciation against the dollar, equivalent to an average of 0.5 per cent on monthly basis.

Dr Mugume said: “There was a draw-down of foreign deposit assets of banks of $26 million (about Shs66.482 billion) during the three month period ended August 2013, from a build-up of $32 million (about Shs81.824 billion) during the preceding period.”

The value of the dollar weakened due to the slight depreciation in the dollar against the 16 most traded currencies as a result of the US Federal Reserve policy which saw it purchasing US treasury bonds of $85 billion per month.

BoU statistics indicate that the Shilling appreciated by 0.4 per cent monthly to Shs2,568.9 per dollar but depreciation by 2.1per cent on year-on year basis.

Uganda’s foreign exchange market is fully liberalised. “On the exchange rate, weak demand has played in favour of the Shilling, concerns of instability are not in the picture at the moment and the outlook remains of a relatively stable going forward,” said the managing director of Alpha Capital, Mr Stephen Kaboyo.

Commercial banks hold assets in dollars to guard against market risks.