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IMF to Bank of Uganda: Strengthen Supervision of Commercial Banks

Justine Bagyenda, Executive Director Supervision BoU, gave the attached key note address at the Agent Banking Conference organized by Stanbic Bank Uganda yesterday at Kampala Serena Hotel.
Justine Bagyenda, Executive Director Supervision BoU

The International Monetary Fund (IMF) has urged Bank of Uganda to “strengthen financial oversight” of commercial banks given the rise in non-performing loans and the recent failure of the third largest bank – Crane Bank.

The institution’s 2017 Article IV Consultation and Eighth Review Staff Report indicates Bank of Uganda needs to do more to ensure the quality of banks’ reporting is accurate to avoid a risk to the validity of the stress test results.

“The authorities agree that the experience calls for more intrusive supervision, and explained that they are also focusing on banks’ risk management frameworks,” reads part of the report.

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In October 2016, the BoU took over management of Crane Bank, saying it had become undercapitalized and encountered liquidity problems.

The bank was the third largest domestic bank, accounting for just under 10 percent of total credit to the private sector, and 7.5 percent of total banking system assets.

Officials said Crane Bank had underreported its Non Performing Loans (NPLs) and there were other problems with its financial reporting.

This raised public debate on whether the central bank was properly supervising the financial institutions in the country.

BoU commissioned financial and forensic audits which are still in progress.

In January 2017, the Development Finance Corporation of Uganda (DFCU)—a domestic bank with foreign ownership—was chosen to acquire most of Crane Bank’s balance sheet. BoU took over some of the nonperforming assets.

In response to IMF, BoU said it was strengthening its financial surveillance toolkit with support from the World Bank.

The central bank said it’s conducting mapping the interconnections within the Ugandan financial system to strengthen consolidated supervision; and establishing three financial stability indices to better monitor financial stability risks.

IMF said it “welcomed BoU’s focus on banks’ risk management frameworks and encouraged measures to strengthen supervision, including by closely scrutinizing banks’ reporting.”

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