Bank of Uganda's Emmanuel Tumusiime-Mutebile

Kampala: Bank of Uganda (BoU) has vowed to enforce punitive measures on banks for non-compliance with supervisory directives.

Every year Supervision Report is released to inform the public about issues relevant to the prudential regulation and financial soundness of Uganda’s financial sector, an evaluation of performance of the financial system, and an assessment of risks to financial stability.

According to the just released 2017 Annual Supervision Report, there were 24 commercial banks in operation at the end of last year. BOU conducted on-site examinations of all commercial banks using the risk-based supervision methodology, with a special emphasis on areas that pose the highest risk to financial institutions.

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According to report, as result of their failure to enforce BOU directives, some banks’ information communication technology (ICT) infrastructure and banks’ core banking systems were obsolete, with weak embedded IT controls and unable to adequately support operations, leading to routine operational challenges.

“There was also misreporting of data in the statutory returns submitted by banks to the BOU as well as in the data submitted by banks to the Credit Reference Bureau (CRB)…,” reads in part of the report.

Among the findings, many banks’ systems cannot adequately assess money laundering/terrorism financing risks, and support robust financial reporting therefore BOU will, indicts the

Among the key supervisory concerns arising from the onsite examinations of commercial banks, in a number of banks there were weaknesses in the composition of board committees, succession planning for board members and senior management.

The report indicates that there were delays in addressing vacancies in key positions of banks’ organizational structures. For regional and international banks, the key concerns related to risks that emanate from over reliance on the parent companies for operational support.

At the end of December 2017, commercial banks met the regulatory minimum capital adequacy requirements. The consolidated banking industry core and total regulatory capital adequacy ratios (regulatory capital to risk-weighted assets) improved from 17.3 percent and 19.8 percent to 20.9 percent and 23.2 percent respectively in 2017.

This improvement is largely attributed to better profitability leading to a 30.1 percent increase in banks’ retained earnings, from USh.1.6 trillion in 2016 to USh.2.1 trillion in 2017.

The capital position of the banking industry was also reinforced by the write-off of Crane Bank’s accumulated losses, which had, in 2016, significantly reduced the aggregate industry capital position.