emmanuel tumusiime - mutebile : uganda ’ s banking sector speech by prof emmanuel - tumusiime mutebile, governor of the bank of uganda, at the uganda bankers ’ association dinner, kampala, 27 november 2009. * * * the guest of honor, hon minister of finance, planning and economic development distinguished guests, ladies and gentlemen, allow me to congratulate uganda bankers association ( uba ) for organizing this inaugural annual diner. you must continue so that you allow the chairmen and members of the board of directors of banks to understand some of the things we discuss every month between the governor and chief executives of banks. i wish to take this opportunity to congratulate all the banks upon satisfactory operating results for the year ended 2008 and hope that the operating results for the year ended 2009 will be as good if not better despite the world trends. when i first stated that the world financial crisis would not affect uganda ’ s banking and financial sector, i was called all sorts of names : “ crank ” ; one newspaper said i should go back to school! they have not apologized because now at the end of it all, the crisis hasn ’ t affected ugandan banks. but the economic crisis may be having second round effects, but all the banks are strong, safe and sound. i also take this opportunity to thank banks for enabling us maintain a sound and stable financial sector. many other countries envy what you have done and let us continue working together to ensure that we are the envy of those people who sometimes call us names because of other events unrelated to banking. the banking sector has remained largely profitable and solvent with average capital averaging 22 percent of risk weighted assets as in the third quarter of 2009. it is testament to the prudent macroeconomic policies and the strengthening of banking supervision that the bank has put in place. notwithstanding, it ’ s important to note the second round effects of the economic crisis due to external shocks which has affected both the current and capital accounts and reduced growth in aggregate demand must be felt. slower growth in aggregate demand has put real gdp growth lower with gdp growing at 7 percent in 2008 / 09 which was lower than 9. 5 percent growth rate projected. but this growth rate is still much higher than the rates of sub saharan african countries. let us not go down and say economic situation is bad because it ’ s good and together with you we can make it even better. and in particular i want to tell you that bou is

the capital markets authority, to safeguard the interests of savers and other users of the financial system. while we recognize that financial markets are characterized by market failures, it is often very difficult, in practice, for governments to correct these failures and efforts to do so are often counterproductive. an important component of the financial system is the capital market, which entails funds being mobilized by firms, institutions or the government directly from savers through the issuance of equities or bonds. although market based financial systems are sometimes contrasted with bank based systems, this is in some respects a false dichotomy. the capital market is not a substitute for the banking sector. instead capital markets and the banking sector are complements ; each catering for different needs of the economy in terms of financial services. in particular, efficient capital markets are much better suited than commercial banks to provide long term finance to the corporate and public sectors. the capital market is also better placed to accommodate the needs of investors – both institutional and personal – who require long term assets and have a higher appetite for risk than is typical among depositors in commercial banks. as the business sector of our economy develops and as a larger share of the population are able to participate in institutional vehicles for savings, such as pension schemes, the demand for capital market instruments will grow. in this regard, i would like to note that one of the most important reforms for stimulating capital market development in this country is the genuine liberalization of the pensions sector, so that all pension providers licensed by the uganda retirement benefit authority can compete on a level playing field to manage both mandatory and voluntary pension contributions. we have been discussing pension reform for the last 20 years. we have put in place the appropriate regulatory structure. now is the time to liberalize the sector and open it up to competition. monopoly is never conducive to the vibrant growth of a market. to conclude, i would like to commend the capital market authority for their efforts to spearhead the preparation of the master plan for the capital market. the bank of uganda is proud to have contributed to these efforts and we will continue to play a role in supporting capital markets development in our country. thank you for listening.