CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
|
Uganda |
ECONOMY
Uganda’s financial sector is much healthier and stronger than before,
for
a number of reasons which include:
the closure of three insolvent banks
in 1998-1999;
improvements in the legislation governing banks;
better supervision
of the Bank of Uganda
In his 2000/2001 budget speech on 15 June 2000, Uganda’s Finance, Planning and Economic Development Minister, Gerald Ssendaula, said the Ugandan government has taken steps to further strengthen the framework for banking supervision and regulation. Bank owners must now ensure that their banks are managed prudently so as to safeguard depositors’ funds. Also, banks must have a strong capital base so as to be in a position to cushion themselves against losses, and to safeguard depositors’ funds. Indeed, a bank’s capital is the most important factor in maintaining confidence. The essential function of bank capital, in other words, is to keep the bank open and operating!
Improvements and weaknesses
Ssendaula said a new Financial Institutions Bill is being drafted and would soon be submitted to Parliament. «I believe that the action we have taken to improve bank regulations and supervision and to enforce compliance with the banking laws, has yielded positive benefits for bank customers and for the financial soundness of the banking industry,» he said. And this has been borne out by the improvement in the financial performance of the banking industry. Total bank deposits have increased together with an improvement in the overall capital position of banks, but incoming funds are not distributed evenly throughout the banking world. There has been a «flight to quality» in which some banks lost depositors to other banks.
And what happens when borrowers fail to repay their loans? The Finance Ministry is concerned that there are still signs of weaknesses in the overall earnings and quality of assets in the banking sector. Banks continue to enforce recovery of bad debts through court action, but this can take an age especially when some kind of collateral is involved. It is important now to strengthen the commercial division of the High Court to help in speeding up such cases.
The Bank of Uganda (BOU) has indicated it is monitoring foreign money and stock market developments, and is taking appropriate action whenever necessary. During the financial year 1998-1999, the BOU strongly intervened in the foreign exchange market, with the sale of US $110 million in order to stabilize the exchange rate. On 10 August 2000 the BOU likewise intervened in the foreign exchange market with the sale of US $6 million as the Ugandan Shilling was maintaining a steady falling rate against the US dollar.
During 1999/2000 financial year, Uganda’s monetary policy management was faced with four challenges: The payment of depositors of closed banks while at the same time ensuring overall macroeconomic stability; the continued weakening of the Uganda shilling against the US dollar; the deteriorating external terms of trade; inflation caused by drought many parts of the country.
Some banks have «failed» in Uganda and depositors have had to be re-imbursed for their lost deposits. But the BOU has now said that it will only reimburse insured deposits. Ssendaula says: «The Bank of Uganda can supervise the banks and enforce the banking regulations, but no banking regulator, anywhere in the world, can guarantee that a bank will never fail». But it would appear from the Judicial Commission of Inquiry into the closure of banks chaired by Justice James Ogoola in August 2001, that the central bank’s Supervision Department is inadequately staffed. By saying that the BOU doesn’t have the required qualified personnel to inspect all banks but only sufficient to watch over «banks in crisis», is a veiled admission that the BOU has financial constraints, and lacks the capacity to conduct the necessary inspection and supervision of all financial institutions in the country.
Another factor which must be noted in the banking world, is that in recent months, government officials and representatives of central banks and law enforcement agencies in Kenya, Tanzania and Uganda, and the Commonwealth Secretariat met in Arusha, Tanzania, to tackle the growing threat of money laundering and drug trafficking in the East African region. The East African Cooperation Secretariat hosted the four-day conference in association with the Tanzanian government.
The objective of the meeting was to enable participants to identify the types of money laundering, and the vulnerability of the financial sector and the economy at large. A liberalized economy means free movement of money, and this and other factors such as the proliferation of casinos, can create an environment for money laundering if not properly regulated.
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PeaceLink 2001 - Reproduction authorised, with usual acknowledgement