Public Domestic Borrowing and its Effect on Deposit Growth, Private Sector Credit and Interest Rate; Evidence From Uganda, Sulait Tumwine, Bruno Muramuzi, Prof. Twaha Kawaase, Zuraika Nakabuye and Prof. Joseph Ntayi
Sulait Tumwine, Bruno Muramuzi, Prof. Twaha Kigongo Kawaase, Zuraika Nakabuye
Department of accounting
Makerere University Business School, Kampala
Uganda
Email: stumwine@mubs.ac.ug
Prof. Joseph. M. Ntayi
Faculty of Economics, Energy and Management Science
Makerere University Business School, Kampala
Uganda
DOI: 10.47556/J.WJEMSD.18.4.2022.6
Purpose: This paper investigates the effect of public domestic borrowing (PDB) on deposit growth (DG), private sector credit (PC), and interest rates (IR) among commercial banks in Uganda.
Design/methodology/approach: Three equations are formulated to allow the application of the Generalized Methods Moment (GMM) approach to estimate the equations while controlling for bank internal factors, industry level and macro-economic indicators. Data for commercial banks were drawn from annual reports provided by a Bank of Uganda Depository Corporation survey (2008-2019).
Findings: The study finds a significant negative relationship between PDB and IR. Although this result is not consistent with the behavioural expectations, it suggests that an increase in PDB would lower IR and increase savings and deposits. The study further finds evidence to support the fact that high PDB facilitates business undertaking and improves deposit growth in the banking sector. Lastly, the study result reveals that banks create more loans to the private sector and households when PDB reduces.
Practical implications: Our results contribute to academia and policy on the effective use of public domestic borrowing to harness deposit growth, private sector credit and interest rates. The results suggest that efficient and effective utilisation of public borrowed funds would ease the cost of doing business, boost labour productivity, output, employment, savings and taxes; all these are associated with improved GDP and deposit growth that causes a reduction in the lending rate charged by banks.
Originality/value: Existing literature has not paid enough attention to the effect of public domestic borrowing on the three specific outcomes, deposit growth, private sector credit and interest rates, mostly in the African context.
Keywords: Public Domestic Borrowing; Deposit Growth; Private Sector Credit; Interest Rate.
Citation: Tumwine, S., Muramuzi, B., Kawaase, T.K., Nakabuye, Z. and Ntayi, J.M. (2022): Public Domestic Borrowing and its Effect on Deposit Growth, Private Sector Credit and Interest Rates: Evidence From Uganda. World Journal of Entrepreneurship, Management and Sustainable Development, Vol. 18, No. 4, pp. 517–532.
