The Governor of the central bank, Emmanuel Tumusiime-Mutebile has said the era of the bank bailing out commercial banks is over.
Speaking at the annual Uganda Bankers’ Association (UBA) conference at the Kampala Serena Hotel on Tuesday, Mutebile said bailing out commercial banks encourages a culture of mismanagement because banks know they will be bailed out.
“Such an option would be extremely dangerous. It would allow the distressed bank to continue being mismanaged in the same manner that caused it to become distressed, thereby incurring further losses at the taxpayers’ expense. It would also send a signal to all participants in the financial markets that mismanagement carries no consequences for the owners and managers of banks,” he said.
The remarks came shortly after Patrick Mweheire, the chief executive officer of Stanbic Bank, painted a bleak picture of the banking industry in Uganda at the same conference.
Mweheire, said that out of 24 commercial banks in the country, six made losses last financial year while another six are hanging on precariously by a thread.
While he did not mention the banks by name of recent there have been reports of a liquidity crisis at one of the leading banks.
Mutebile told bankers on Tuesday that in spite of their best efforts, “we must be realistic about what prudential regulation and supervision can feasibly deliver in a market oriented financial system. It is not possible for regulators to detect all instances of fraud that may occur in financial institutions, not least because such frauds are often carefully concealed from external auditors as well as regulators.”
“As a regulator, the primary objectives of the Bank of Uganda (BoU) are: to protect the interests of depositors and to ensure the overall stability of the financial system, through prudential regulation and supervision of deposit-taking institutions,” he said.
Mutebile said the central bank's takeover of Crane Bank in 2016 was a difficult decision.
“The intervention in Crane Bank, was the most difficult of these interventions and the one which was potentially the most problematic, because it was a large bank of systemic importance, and because of the huge magnitude of the losses it had incurred,” said Mutebile.
