Bank of Uganda governor says bank closures were well-intentioned

Governor tells Parliament Bank was right to intervene but acknowledges post-intervention challenges

Remarks by the Governor of the Bank of Uganda, Emmanuel Tumusiime-Mutebile, at the Committee of Commissions, Statutory Authorities and State Enterprises (COSASE) probe into closed banks on Thursday, 20 December, 2018

Honourable Members,

I would like to thank you for the opportunity to present our responses to the auditor general’s report and for the cordial interaction between the Bank and the committee. On behalf of the Bank, allow me to thank you for your time and your effort.

I would like to thank you in particular for your candid approach to tackling issues that you believe needed to have been addressed or at least taken into consideration by the staff of the Bank of Uganda. I also would like to express my appreciation to the auditor general for his report which raised issues that will culminate in an improvement in the operations of Bank of Uganda.

The Bank of Uganda acknowledges the relevance of this exercise and we are confident that it will enhance transparency and accountability, which are key values that the Bank upholds. This interaction has highlighted the shortfalls within our processes, policies and practices.

It has been a learning process not only for the management but also for the staff who followed the proceedings closely, and I am confident that resulting from this process, we will review ourselves, the Banks processes and policies in order to strengthen our capacity to perform the functions of the central bank better.

It will be incumbent upon us to put in place measures that translate into a stronger institution and visibly boost the confidence of the public in the central bank. We want to see a stronger financial sector and economy built on the confidence that the public has in us.

Honourable chair, allow me to mention that the staff changes which were made in February 2018 were intended to address some of the challenges that we knew but which have now become all too evident in the last few weeks. The interaction process with Cosase, so far, has helped to expose some of the challenges to the natural medicine of air and light so that we can address them better. For that, Mr Chairman, we are grateful. Further changes and remedial action will be done in due course in order to restore the Bank’s image.

Honourable chair let it also be clear, that the Bank of Uganda in every case was right to intervene in the financial institutions. Delay to act, failure to act, lack of decisiveness in the actions taken could very easily have led to contagion, financial crisis and a real danger to savers, borrowers, businesses and the economy at large. If we had not intervened, this committee would be carrying out a different kind of probe.

Mr Chairman, in 2008, the lack of decisiveness from regulators led to a global financial crisis. The House of Commons in the UK and the House of Representatives in the US conducted a different kind of inquiry; they asked “What happened to our economy?” We take some solace from the fact that we have not had to answer that question.

The challenges we have seen relate to post-intervention processes. The Bank will review these processes to ensure that future processes are well documented and follow the law to the letter.

We take note of the committee’s concern of conflict of interest with respect to service providers and directors of supervised financial institutions. As previously mentioned, Bank of Uganda will review its policy on conflict of interest and its implementation.

Honourable members, I would like to reiterate that Bank of Uganda’s interventions in the financial sector are well-intentioned with a focus on protecting depositors, increasing confidence in the banking system and fostering financial sector stability. This has been achieved, by large, in each of the cases we have intervened which is a key milestone on our part.

Overall, the Bank of Uganda has performed well towards achieving its mission of fostering price stability and a sound financial system.

As I conclude, it is my appeal that the committee shall handle the information submitted to you in the course of this interaction within the context of the complexity in bank resolution.

Hon Chairman, as we conclude and look forward to your Report, our work is clearly cut out for us and is already in progress.

I thank you for listening to me.

E Tumusiime Mutebile