The deputy Governor Bank of Uganda (BoU), Dr. Louis Kasekende has said the Central Bank has performed well at regulating commercial banks by preventing major depositors’ financial loss and keeping the country from experiencing a systematic financial crisis.
Kasekende noted that since the enactment of the financial institution act in 2004 that gave BOU the right to regulate banks, only three banks, 2 small ones in 2012 and 2014 and one big one in 2016 have failed and even in those cases, depositors were able to recover all their deposits.
“The combined deposit market share of the three banks at the time of their closure was about 7%. Because BoU intervened in these banks in a prompt manner in line with the Mandatory prompt corrective actions, the depositors did not lose any of their money,” Kasenkede noted.
He explained that in the three cases where the banks closed, the latest being Crane Bank in 2016, BoU was able to detect mismanagements in time and able to carry out timely action to avoid any financial crisis.
“In all these cases, BoU was able to transfer the failed banks through purchase of assets and assumptions of liabilities transactions using power confined in it. If it had noted in time, the losses incurred by these banks would have been much larger and much difficult to ensure depositors’ funds were fully recovered,” he clarified.
The deputy governor was speaking during the 7th annual international leadership organized by Makerere University Business School, Entebbe on Thursday 29th November where he delivered a key note speech on the ‘Governance/regulation in the financial sector in Uganda’.
Kasenkede said that BoU has been able to regulate the banks without interfering and limiting their role which is extending financial credit to the private sector.
“BoU, in common with other bank regulators in the world does not aim to prevent every single failure of the bank. The regulator has the right and skill to do that by restricting banks to investing in only safe assets. However that would stop them from contributing to the economy by lending to the private sector so BoU has been allowing banks to invest in loans, which is risky considering the not all borrowers are able to pay back,” he said.
And added, “BoU only aims to ensure that banks do not take excessive risk and also be able to properly manage their risks by adequate diversification of the loan portfolio.”
According to the financial institution act, banks in Uganda must hold a total asset which is at least 12% of the risk weighted assets to safeguard the deposits of their depositors.