sufficiently high real returns to enable them to service their debt. therefore, if we want to see continued growth of bank lending to creditworthy borrowers, it is unavoidable that bank lending rates and, therefore, interest rate spreads, must be reduced substantially. if banks are to narrow their net interest margins without bis central bankers ’ speeches reducing their profits, they must become more efficient and control their operating costs, perhaps by exploiting economies of scale and scope. the second area where i think there is some justifiable concern about the performance of banks is the sectoral composition and characteristics of bank lending. i have already highlighted the very impressive growth in aggregate bank lending since the start of the millennium. however, most of this lending is extended to the non traded goods sectors, especially trade, construction and telecommunications, and to the household sector. the traded goods sectors of the economy, such as agriculture and manufacturing, receive only 21 percent of total bank credit to the private sector. the low share of lending extended to the traded goods sectors is a concern because it is the growth and diversification of these sectors which are the principal drivers of technological upgrading and thus economic development over the long term. a developing economy can often generate rapid spurts of economic growth over the short term based on investment in services and construction, but long term growth and structural transformation is almost always led by the export sectors. the ugandan economy is not attracting anywhere near enough private investment in the traded goods sectors in which it has a comparative advantage on world markets and which could, therefore, drive export led growth ; sectors such as commercial agriculture, agro - processing, light industry and tourism. the lack of private investment in these sectors is also reflected in the relative paucity of bank financing for them. i am not trying to claim that a shortage of bank lending is the only binding constraint to higher investment in these sectors, because there are clearly many other serious constraints ; weak business and technological skills, the high costs of doing business, poor transport logistics and infrastructure, for example. however, the creation of a customs union and a common market in the east african community will expand market opportunities for ugandan traded goods industries and thus should enhance incentives for private investment in these industries. if we are to begin to build dynamic traded goods industries in uganda we have to find ways of channelling more finance to these industries, both for capital investment and working capital. i appreciate that lending to these industries, especially when it involves non traditional exports, is

emmanuel tumusiime - mutebile : emerging issues in the banking industry remarks by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the opening ceremony of the colloquium of judges and magistrates on “ emerging issues in the banking industry ”, mbarara, 13 august 2015. * * * my lords, the chief justice and deputy chief justice my lords, the honourable judges your worships, the magistrates the chairman and members of the uganda bankers association ( uba ) ladies and gentlemen, it is a great pleasure and honour for me to take part in this important gathering which brings together members of the uganda bankers ’ association and colleagues from the judiciary to discuss very pertinent issues on the banking and financial sector. i am very much delighted and convinced that this forum provides a unique opportunity for your lordships and worships together with the bankers to discuss and have a better understanding of emerging issues and risks in pursuit of enhancing the soundness of the financial sector. ever since uba came into being in 1981, it has continued to play an important role to articulate the interests of the banking industry in uganda by reaching out to all the key stakeholders in society, including the government, the judiciary, the parliamentarians, the business community and the general public. this forum therefore, is in line with uba ’ s strategic mission of improving knowledge on the banking sector risks and building consensus for addressing challenges and developing ideas for a better legislative environment and resolution of financial disputes which by nature are common in the banking industry. over the last decade, the banking industry globally has witnessed a significant transformation especially from the technological front. these changes have immensely reshaped the manner and speed of financial services delivery as well as a menu of products and services offered by financial services providers to customers. uganda like most other countries has not been spared by these developments owing to its interconnectedness to the broader financial system through the payment system and competitive pressures for business which has often spurred the need to innovate. at the same time, the risk profiles of business have also profoundly changed and thus, while banks continue to harness the ensuing benefits from the innovations, they must find ways of containing the array of risks associated with the developments to safeguard the integrity of the banking sector. in this address, i will attempt to highlight some of the emerging issues and risks which need to be looked into ; to ensure the stability of the financial sector. i will also briefly talk about the