A new platform that will facilitate more bank-to-bank trades has been launched, a development that further cushions the industry against credit defaults.
Financial services company Frontclear is behind the TradeClear platform, which allows banks to take up short term credit in times of financial distress. Bank of Uganda regulates the platform.
The platform is expected to supplement the usual seven-day interbank market at the Central Bank, which the larger banks usually use.
“This umbrella guarantee facility will cover the risk of interbank defaults. If a borrowing bank fails to pay the lender in a secured transaction, Frontclear will stand ready to pay back the funds advanced by the lender,” the deputy governor Michael Atingi-Ego said while officiating at the signing ceremony at Sheraton Kampala Hotel recently.
Interbank markets are crucial. Banks in financial distress use the interbank market to borrow short term credit, usually not more than seven days. The interbank market also relieves the central bank – the last resort for credit – of pressure to deal with commercial bank financial problems.
Charles Katongole from UBA’s Treasurers Forum said that Tradeclear was going to widen the pool from which banks can access money, and also improve their management of capital. Atingi-Ego pointed out that participating in the TradeClear program is voluntary and based on the informed assessment and judgement of financial institutions.
Commenting on the developments, I&M Bank Uganda’s Executive Director and Chief Operations Officer Sam Ntulume said banks will offer more competitive pricing and product solutions to their clients. At least 15 Ugandan banks have signed onto the Tradeclear platform, a statement from the company noted.