Bank of Uganda announces guarantee facility for interbank defaults

The establishment of a facility like Tradeclear in Uganda’s money market has been long overdue, and is expected to dislodge the logjam of market segmentation in the interbank money market. It is an umbrella guarantee facility that will cover the risk of interbank defaults, i.e., if a borrowing bank fails to pay the lender in a secured transaction, and Frontclear will stand ready to pay back the funds advanced by the lender.

TradeClear introduces standardized ISDA and GMRA contracts between all participating banks, with variation margins exchanged weekly in Ugandan shillings. Together with Frontclear guaranteeing mark-to-market losses upon default by a participating bank combined with the existence of a counter-guarantee by KfW (AAA-rated German development bank), counterparty credit risk will be mitigated and trading lines are expected to increase across the market.

“We hope that a meaningful interbank market will develop on the back of TradeClear, and in particular, that a deep and efficient repo market will take off,” said deputy governor of the Bank of Uganda, Micheal Atingi-Ego, in a speech.

Read the full speech

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