BANK OF UGANDA
Remarks
By
Professor Emmanuel Tumusiime-Mutebile,
Governor, Bank of Uganda
at the
Uganda Bankers' Association (UBA) Informal Dinner
Held at the Residence of the Managing Director, KCB Bank
Uganda Limited, Kololo, Kampala
Friday November 09, 2018
Our host, The Managing Director, KCB Uganda Limited,
Chairman of Uganda Bankers' Association,
Chief Executive Officers of Financial Institutions,
Executive Director of Uganda Bankers Association,
Senior Managers and Staff from Bank of Uganda,
Invited Guests,
Ladies and Gentlemen
Good evening,
It is a pleasure to be with you this evening for yet another informal
Uganda Bankers' Association Dinner.
Mark Twain once remarked that "a man's character may be learned
from the adjectives which he habitually uses in conversation". You can
tell from the last couple of informal dinners that I am happy with the
progress we have made as the Supervised Financial Institutions (SFIs)
sector over the last quarter.
But before I reveal the reasons for my happiness, I thank the Managing
Director of KCB Bank Uganda Limited for hosting us this evening. I am
grateful to the organisers of this informal dinner for the wonderful
experience.
Tonight, I would like to focus on the significant events that the
Supervised Financial Services Sector has had to deal with since July
2018 when we last interacted.
I thank the Uganda Bankers' Association for supplementing the Bank of
Uganda (BoU) efforts in promoting the implementation of the
International Financial Reporting Standards (IFRS) 9. I have been
informed that the UBA successfully organised the Chief Financial
Officers' (CFO's) symposium on IFRS 9 on September 13, 2018 in which
BoU fully participated.
I am happy to note that the symposium was very fruitful as it provided
valuable insights and sharing of practical experiences in the
implementation of the IFRS 9 in other jurisdictions. I recognize the
efforts and distinction of UBA in identifying a resourceful facilitator
who is a member of the International Accounting Standards Board
Implementation Task Force for IFRS 9.
Bank of Uganda continued its efforts to enhance the supervisory and
regulatory environment through the publication of the Financial
Institutions (Capital Adequacy) Regulations, 2018 in the Gazette. The
new Capital Adequacy Regulations will now require Commercial Banks
and Credit Institutions to take into account the capital charge for
market risk in addition to the existing credit risk capital charge.
Accordingly, effective September 30, 2018 the minimum on-going core
capital requirements was enhanced from 8 percent to 10 percent of the
total risk adjusted assets plus risk adjusted off balance sheet items for
Commercial Banks and Credit Institutions. The achievement of this
milestone marks the point of full implementation of Basel I Capital
Accord by BoU.
In furtherance of the implementation of the Basel standards in the
Supervisory framework, the Bank of Uganda will now focus on
enhancing the implementation of the Basel II Capital Accord. The BoU
has implemented some of the pre-conditions for Pillar II of the Basel II
Capital Accord, which is enshrined in the legal and supervisory
framework.
The BoU embraced the Risk Based Methodology, which mandates the
Board with the responsibility to ensure that a sound risk management
framework is in place. While these form good foundation for
determination of the adequacy of the capital position based on the risk
profile, the body of work is not yet complete. For example, there is
considerable work to be done in the implementation of Pillar II
requirements for Internal Capital Adequacy Assessment Program
(ICAAP) as well as capital charge for operational risk based on the
standardised approach.
With regard to market discipline, there exists a rigorous information
disclosure requirement stipulated in the Financial Institutions Act (FIA)
2004 as amended and implementing regulation on the requirements for
disclosure in final annual accounts, risk management policies,
publication of bank charges, financial consumer protection. However,
full implementation of market discipline requires adoption of Pillar I of
Basel II Accord.
As part of the financial markets development plan, the Bank of Uganda
recently approved the proposal to make Deposit Auctions marketable
and gave a no-objection to the introduction of Covered Sale Buy Back
Bonds (CSBBB). The BoU approved the marketability of the Deposit
Auction Facility as well as its issuance at a discount. As a result, the
financial institutions can now ably trade the Deposit Auction facility in
the secondary market.
Stakeholder impact is critical for the long-term survival of Supervised
Financial Institutions (SFIs). SFIs ought to proactively assess the power
and influence of each of their stakeholders as well as the legitimacy of
stakeholder claims on financial institutions and design effective
strategies to respond to each of the stakeholder claims. Specifically, the
power and influence exhibited by the general public and depositors
places them as key players in the management of financial institution's
liquidity.
Therefore, unnecessary "noise" perceived by depositors relating to the
uncertainty of the long term survival of a financial institution can spark
off liquidity crises and bank runs. Financial institutions must therefore
invest appropriately in developing effective corporate communication
strategies as a new liquidity management tool.
Last but not least, I would like to congratulate Mr. Matthias Katamba on
his appointment as the new Managing Director of dfcu Bank. But also
thank Mr. Juma Kisaame for serving dfcu Bank diligently. Mr. Michael
Mugabi, allow me to congratulate you in your new assignment as
Acting Managing Director of Housing Finance Bank. And I hope that
the Board of Directors shall find it fitting to confirm you in that
position.
Once again, I thank you for the continued support to the economic
development of Uganda through your financial intermediation role.
Thank you for listening.
Professor Emmanuel Tumusiime-Mutebile
GOVERNOR, BANK OF UGANDA