The Bank of Uganda Governor Emmanuel Tumusiime Mutebile has said his bank will not give any credit to distressed commercial banks.
“We will not give credit support to distressed banks in the hope of the banks making money later because of poor management,” Mutebile told delegates attending the annual Uganda Bankers’ Association (UBA) conference at the Kampala Serena Hotel on Tuesday.
Mutebile’s warning comes after it recently emerged that DFCU Bank was unable to secure liquidity in form of a loan from the central bank.
It has also emerged that about six commercial banks are loss making, sending fears that they could close soon.
Sources say DFCU Bank presently does not have enough liquidity to lend out despite making net profits of Shs127 billion in the year 2017.
Major shareholders have of recent been hit by fights over the profits earned in that year, having acquired Crane Bank. Britain’s’ Commonwealth Development Corporation (CDC) is poised to exit, should they sell their shares.
Meanwhile, the Chairman of UBA Patrick Muheirwe, while addressing delegates at the conference said: “There are inefficiencies in the credit system that has given people a chance to refuse payment of loans.”
Muheirwe said it takes commercial banks almost 10 years to resolve a dispute in the courts of law, which he said drags the business as banks need the money back to continue operating.
In January 2017, BoU controversially sold Crane Bank assets to DFCU Bank for Shs200 billion, even as the central bank claimed to have spent Shs200 billion on recapitalization of the defunct bank.
Parliament would later launch an investigation into BoU regarding the sale of defunct banks, accusing BoU managers of never writing any reports concerning the transactions. The Office of the Auditor General is currently investigating BoU.
However, the governor said that despite facing criticism, BoU has been able to continue operating very well. “As a regulator, the primary objectives of the Bank of Uganda (BoU) are: to protect the interests of depositors and to ensure the overall stability of the financial system, through prudential regulation and supervision of deposit-taking institutions,” he said.
In another development Mutebile has said that BoU all banks have the potential to fail as long as they transact business. “It is not possible BoU to guarantee that no bank will ever fail because that would require the elimination of risk-taking by banks, which would in turn hinder the very purpose of financial intermediation,” he said.
Muheirwe said the sector was taking steps to review cost structures while expanding reach and penetration.
“We are partnering more with Fintechs, aBi Trust, NITA Uganda, MasterCard among others to build synergies for alternative and cost effective service delivery,” he said.
Finance Minister Matia Kasaija, while addressing delegates at the conference said: “The banking sector is key in collection of government tax revenue in addition to being an employer of a lot of Ugandans. This is why having a sound and stable financial sector is important and a must.”
On government paying debts to the banks, he said he has allocated Shs730 billion to settle domestic arrears which is double the amount that was allocated last financial year. “Accounting officers who accumulate arrears will lose their offices. Do not commit yourself to purchase until you have the money with you,” he said.
Prime Minister Dr. Ruhakana Rugunda while addressing delegates said government would help banks prosper. “We commit to maintain some policies to enable the Banking Sector thrive,” he said adding that government recognises that technology has changed the way people do business.
He said: “The Electronic Act is in place. The Data Management and Privacy Bill is also going to become an Act. These are structures to guide the activities of the banking sector and ensure financial integrity.”
He said 33 major towns have been connected to cyber banking and that an enabling infrastructure is in place. “By the time digital banking starts, government will be ready for it. We must note that it’s projected to be a very big source of revenue to the country,” he said.
Rugunda said the banking sector was changing every day. “The digital revolution is coming and the only question is, are we ready for it? Is the central bank ready to bring about a secure and efficient macro-economic sector and expand revenue to the country?” He asked.