Uganda adjusts deposit protection limit for currency movementsRight now
Uganda has adjusted the portion of savings reimbursable under its Deposit Protection Fund from UGX 3 million to UGX 10 million. Finance minister Matia Kasaija says the adjustment was prompted by a need to align the value of the cover with the macroeconomic changes that have taken place since the fund was first introduced just over two decades ago.
Until now, depositors holding savings in a regulated financial institution would be reimbursed to a maximum of UGX 3million regardless of whether they held higher balances in their accounts.
Although it reflects a three-fold increase in local currency terms, the new limit is slightly cash negative in dollar terms. Equivalent to $2770 in 1997, the UGX 3 million had been diluted to just $824 today as a result of currency depreciation. In contrast the new UGX 10 million ceiling was equivalent to $2749 at midday on September 11, according to online currency conversion engines.
“The limit was no longer reflective of the macroeconomic changes that have taken place over time,” Kasaija said adding that the adjustment would improve public confidence in banking.
So far 33 lenders and deposit taking institutions operating in Uganda are required to subscribe to the fund that is separately run by the central bank, by paying an annual premium of 0.2pc against deposits in their custody.
The fund has so far accumulated UGX 650 billion in deposits that earned it UGX 80 billion in interest income during in the past year according to its chief executive Ms Julia Oyet.
The bank of Uganda closed five financial institutions between 1990 and 1999. Depositors were however reimbursed to the full value of their balances to preclude loss of faith in the sector that was struggling with poor governance.