emmanuel tumusiime - mutebile : the international financial crisis and its impact on uganda speech by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the bank of uganda, kampala, 24 september 2008. * i. * * introduction the current global financial turmoil is rooted to the sub prime mortgage crisis. it is a recent economic problem that is characterized by contraction in liquidity in the global credit markets and banking system. an undervaluation of the real risk in the subprime market is cascading, rippling and ultimately severely affecting the world economy. the crisis began with the bursting of the united states ’ housing bubble and high default rates on " subprime " and adjustable rate mortgages ( arm ). loan incentives, such as easy initial terms, in conjunction with an acceleration in rising housing prices encouraged borrowers to assume difficult mortgages on the belief that these would be easy to refinance at more favorable terms. however, once housing prices started to drop moderately in 2006 – 2007 in many parts of the u. s., refinancing became more difficult. defaults and foreclosure activity increased dramatically, as easy initial terms expired. home prices failed to go up as originally anticipated, and arm interest rates reset higher. foreclosures accelerated in the united states in late 2006 and triggered a global financial crisis through 2007 and 2008. ii. effects of the crisis on uganda uganda ’ s macroeconomic conditions and the entire financial system are generally robust, healthy, and better able to weather the ongoing financial storm in the global economy. first, uganda ’ s financial institutions had not invested in derivatives that had exposure to these investment bankers. better supervisory oversight and risk management practices have strengthened bank balance sheets while bank asset quality, profitability, and capital adequacy have also improved remarkably over recent years. second, our real estate sector is also unlikely to be negatively affected since our relatively young real estate companies are not linked to the international organizations that have failed. our company valuations are therefore unlikely to be adversely affected. uganda ’ s economy resilience also stems from improved economic policies and institutional frameworks built over the last two decades. the banking and the entire financial system are stronger after years of restructuring. these have not only favored price stability and a firm base for sustained economic growth, but have also increased the country ’ s resilience to shocks generated by adjustments in international financial markets. for

be extremely low, hence denying the saver favourable returns on savings. high interest rates have adverse impact on the financial sector in the form of impairing the borrowers ’ capacities to service the loans as accumulated interest often become unbearable. all stakeholders in the financial sector are called upon to combine efforts in seeking for a solution to high interest rates charged on loans and avoid the potential for political intervention. frauds and forgeries are yet another set of evils which has continued to pose serious challenges to the safety of the financial sector. unfortunately most of the reported and investigated frauds and forgeries seem to reveal internal involvement of bank staff. banks together with law enforcement agencies must therefore do everything possible to ensure that this evil is controlled. frauds, not only deplete the banks ’ earnings and capital, but also create high reputational risk and erode confidence in our sector. in addition to the menace of frauds and forgeries, there are emerging incidents of money laundering that require firm action. unfortunately, the absence of an anti - money laundering law is still a serious impediment to combating this evil. suffice to note that the anti - money laundering bill has been approved by cabinet and we hope the 8th parliament will enact it into law at the earliest opportunity. lastly, as the patron of uganda institute of bankers, i am aware that the institute has a large number of alumni which keeps increasing every year. banks should therefore take advantages of trained alumni of the institute while recruiting and promoting officers to challenging positions. in this way, the banking sector and the institute will form partnership in addressing the existing operational risks within the banking sector. in the next few months, the institute will be conducting the 6th east african banking school here in uganda whose theme is ‘ managing risk in financial services ’. the banking sector is encouraged to make use of this opportunity and sponsor participants to this course. mr. president and council members of the institute, i wish to end by informing you that bank of uganda will be celebrating its 40th anniversary during the month of august this year and all details will be communicated to you in the due course. i thank you all for your attention.