Uganda Development bank [UDB] has been assigned a National long term rating “AAA” with a stable outlook, bank also assigned a long term Issuer Default rating [IDR] of ‘B+’ with negative Outlook, the highest attainable on Ugandas national scale by Fitch rating London, a world international credit Rating agency.
While speaking to the media earlier, Patricia Adongo Ojangole, the Managing director Uganda Development bank said that, the government Uganda has a high propensity to support UDB reflecting the bank’s important policy role, 100% state ownership, as well as a significant share of state-guaranteed funding and a strong record of capital injections.
UDB is Uganda’s primary development bank that lends on preferential terms to borrowers in strategically important sectors of the economy, in particular agriculture and funded predominantly by equity due to consistent government capital injections, in addition to fairly low-priced borrowings that are mostly government-guaranteed.
“Achieving the national highest possible rating is the testament to the bank’s sound financial health in meeting it’s current and future obligations to lenders while fulfilling it’s policy mandates to support the key sectors of the country economy”. Patricia Said.
She explained that, this comes after Fitch, conducts a comprehensive assessment of a participating institution against a common set of parameters including a debt a company holds and how sensitive it is to systemic changes like interest rate and therefore an assessment of the creditworthiness of a borrower’s in a general term’s to scoop into this high ranking rates.
The government Capital Contributions to UDB is well-capitalised, as indicated by a tangible leverage ratio of 81% at end-2022. UDB lends to higher-risk customers that are underserved by domestic commercial banks and bears high concentrations, with customers in the agriculture and agro-processing sectors representing 44% of gross loans at end-2022.
“This means with UDB, can potentially access funding from multilateral funders at relatively lower rate because investors can accept lower lending to entities that present with lower risk of default and the bank can access a wider audience of funders with greater confidence”. Patricia said.
Meanwhile UDB net loans represented a high 80% of total assets at end-2022. UDB consistently reports a high impaired loans ratio (Stage 3 loans under IFRS 9; end-2022: 12.9%), reflecting its high risk appetite and a challenging operating environment. Non-loan assets mainly comprise liquid assets.
“We are committed to identifying opportunities where we can transform the lives of Ugandans by supporting projects that are purposefully to improve the quality of life across the country as well as Ugandas social economic transformation agenda” Patricia said.
The Robust Profitability; UDB delivers robust profitability, with annual operating returns on assets averaging 4.5% during 2019-2022. Profitability is driven by a wide net interest margin that benefits from a low cost of funding, reflecting UDB’s large equity base and funding guarantees.
THE RATING FACTS;
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario defined as the 99th percentile of rating transitions, measured in a positive direction of three notches over a three-year rating horizon.
The worst-case rating downgrade scenario defined as the 99th percentile of rating transitions, measured in a negative direction of four notches over three years and the complete span of best and worst case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’, the Best and worst case scenario credit ratings are based on historical performance.
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