Remarks by Governor at BoU's Fort Portal Town Hall Meeting

Hon. Alex Ruhunda, the Member of Parliament for Fort Portal Municipality,
Owekitinisa James Kaija, representing the Prime Minister of the Kingdom of Toro
Religious Leaders
Resident District Commissioner
Hon. Richard Rwabuhinga, the Chairman, LC V for Kabarole District
Distinguished Guests
Ladies and Gentlemen
Good morning to you all.

I am delighted to be here today to talk to you about the work that the Bank of Uganda (BoU) does to promote the economic wellbeing of the citizens of our Pearl of Africa - Uganda.
With me is a strong team representing the Board of Directors, Management, and Staff of the BoU. Notably, with us is Dr. William Kalema, a Member of the Board of Directors, whose presence shows the high regard that the top leadership of the Bank places in engaging directly with you, the people that we serve.

And I am immensely grateful to the local leaders, including the Mayor, Town Clerk, as well as the Regional and District Police Commanders, together with the people of the beautiful town of Fort Portal - the seat of Kabarole District and the Toro Kingdom - for providing a suitable home for the BoU branch that serves this vital region, and particularly for hosting this town hall meeting today.

A town hall meeting such as this one provides a forum for the central bank to directly address our stakeholders as well as to answer any questions that arise regarding our mandate. Today’s meeting is in line with the Bank’s Strategic Plan 2017-22, which prioritizes public engagements. We are here to share information and experiences about the work that we do, directly with the communities that we serve. Most especially, we have come to listen to the voices of the people and gather feedback about the impact of our work. We also seek to learn about the experiences of the users of financial services.

The BoU is mandated to promote and maintain the stability of the value of the currency of Uganda. This means that it’s our duty to preserve the purchasing power of money by ensuring that the rate at which prices of the things that the average household buys changes across time, which we call the rate of inflation, is low and stable.
The Bank strives to ensure that prices in the markets and shops do not jump up and down in a manner that makes it hard to predict the amount of money required to buy things in the shops and markets tomorrow or in the near future. If the money required for buying things from their markets and shops keeps going higher and higher from one day to another, then those who earn less or fixed amounts of money would soon fail to afford a living.

I am glad to report to you that since the 1990s up to today, the BoU has successfully regulated the amount of money available to the people as well as the relative access to borrowing from financial institutions in such a way as to keep in line with the availability of the things that people buy from markets and shops. Therefore, the average rate of change of general prices across the country has been maintained at levels that are comfortably below 10 percent for several decades now; and the Bank will ensure that the average rate of price changes from one year to another is maintained at around 5 percent in the future.

We are committed to ensuring that the rate of price increases is so low and stable for so long that our people do not worry about sharp price increases when making decisions related to their money.

However, we have experienced a major problem where the interest rates charged by financial institutions remain stubbornly high. Commercial banks’ lending rates have remained high even when the BoU successfully keeps the rate of general price increases tightly controlled and goes further to reduce the official interest rate – the Central Bank Rate - that should influence the direction and level of lending interest rates in a bid to make loans from banks cheaper.

Fortunately, there are some measures that have been undertaken by the Government together with BoU, and even among the financial institutions, which are aimed at reducing the costs of loans. I will mention only a few, such as the introduction of national identity cards and financial cards, which enable the banks to identify the good borrowers who deserve lower interest rates based on their good reputation of paying back borrowed funds. Also, the BoU requires that all borrowers are fully aware of the costs and conditions of the loans; and that customer complaints are resolved well by the banks.

In addition, Government established a fund for supporting farmers who significantly improve their products, keep good records, and have a sound banking relationship with a financial institution to access money at a low interest rate that is considerably below those charged by commercial banks. The fund is known as the Agricultural Credit Facility (ACF). It is administered by the BoU, but farmers who wish to access this facility must apply through their commercial banks.

Furthermore, the banking laws were recently amended to cater for Islamic banking and agent banking, both of which are ways to making financial services more affordable and much easier to access. Specifically, agent banking offers a lot of promise in broadening access to banking services in this region, which has less bank branches than other urban areas. 
Also, the Government has encouraged the development of other financial institutions such as savings and credit cooperatives (SACCOs), accumulating and savings credit associations (ASCAs), rotating and savings associations (ROSCAs), and several other micro finance institutions, by establishing cabinet level oversight of the sector, instituting a support centre, enacting an enabling law together with a regulatory regime under the Uganda Microfinance Regulatory Authority (UMRA).

All these initiatives are intended to improve access to financial services for people at different levels. Nevertheless, there remains room to work on reducing the high interest rates that are prevailing.

Now, let me turn to another aspect of the mandate of the central bank, that is, the supervision and regulation of financial institutions. The Laws of Uganda require the BoU to supervise, regulate, control and discipline all financial institutions. We perform these roles through licensing, monitoring, and disciplining the regulated financial institutions, including commercial banks, credit institutions, and micro-deposit taking institutions.

In order to play its role well, the BoU ensures that only those financial institutions that possess sufficient resources as well as qualified and professional teams, receive licenses to operate. We then continuously monitor the operations of the financial institutions through tracking and studying the information that reflects their business activities.

Furthermore, we physically visit the banks to check that they are following the relevant codes of ethics and professional standards. We are interested to see that the institutions are well run, have the ability to successfully manage unexpected circumstances, and are not acting recklessly by taking excessive risks.

Where we find that the financial institutions are not running their affairs to the required standards, BoU directs their leaders to take corrective measures.
In the cases, where some institutions prove to be unfit to continue operating normally, the central bank takes control and follows a series of steps to ensure that depositors’ interests are preserved during the process of ensuring the orderly exit of those that fail. Therefore, the supervision and regulation of financial institutions is a long and continuous process; rather than an event that comes once in a while and goes away.

I am happy to say that the BoU has been hailed across the African  continent for outstanding supervision and regulation of financial institutions. Accordingly, today, the information we have shows that the banking sector is strong and healthy. Banks possess sufficient financial resources, and the majority, are making profits.

Sadly, the most prominent news from the financial sector recently has been about the investigations by Parliament into the manner in which the central bank handled some banks that failed in the past. It is especially unfortunate that the majority of the bank failures have happened to those that were locally owned.
Few have expressed the value of local ownership of banks better than Dr. Ezra Suruma, a previous Deputy Governor of BoU and former Minister of Finance, Planning and Economic Development, who when he was interviewed for BoU’s 50th anniversary commemorative book titled The Golden Odyssey said ‘I believe that banking is an industry where connections and relationships and access to people in industry matters a lot ...I think that as a community and as a country, we need to be inside not just outside. This means owning, being in close contact with managers, selecting the board members. I believe there is no substitute for ownership and therefore, I do not think that we can claim full independence until we have substantial ownership in the financial sector’.

As such, the failure of locally owned banks is a problem that should keep many people awake at night until Ugandans master the professional skills, knowledge, and attitudes that are required by the banking industry so as to unlock the power of finance in making our communities prosperous.

Contrary to the negative coverage about the central bank during the Parliamentary probe into closed banks recently; I can confidently say that none of the failed banks in our past came to its end, because of the failure of supervision by the central bank. Indeed, in another interview for the Golden Odyssey, the professional banker and former Minister of Finance, Hon. Gerald Ssendaula, categorically stated that 'The bank failures were not a supervision problem. The level of external interference always substantially contributed to BoU sometimes holding back.
And given that we were in the infancy of our politics of the revolution, there could even be representation of the highest levels in some of the cases. So you cannot put the entire insolvency of banks down to supervision.'

Do we want more local banks? Yes, we do. Do we need more local banks? Yes, we do. Can we have more local banks? Yes, we can. But first, we must realize, admit, and correct the mistakes that have led to the demise of the local banks that failed the test of time.

And these problems were predominantly but not limited to: bad loans that were not fully serviced or that went unpaid entirely resulting in losses; insider loans to directors and related companies; mismanagement; misreporting; liability-asset mismatches; and under-capitalization, among others.  

Indeed, we must avoid the mistake that was made by the famous American central banker Dr. Alan Greenspan, who - following the global financial crisis of 1998 - confessed to 'presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ...

Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief.'
It does not please me to say that Uganda has had too many cases of banks that have not always acted in the best interests of their shareholders and customers; often imposing financial costs to the taxpayers as the Government took measures to protect innocent citizens of failed banks.

Fortunately, the BoU responded to the bank failures by reforming the supervision and regulatory framework so as to identify and impose prompt remedial action ahead of time. Consequently, the more recent cases of distressed banks were resolved while preserving depositors’ money and maintaining their uninterrupted access to banking services, as well as securing the stability of the financial system overall.

As I come close the end of my speech, let me touch very briefly on a matter that lies at the heart of BoU's mandate, which is of great concern regarding the handling of our national currency. It is sad to learn that some people across the country are habitually avoiding the use of coins - most especially the shs.50 denominated coin, but those of higher value as well.
Let me remind everyone that the low denomination banknotes of 5, 10, 20, 50, 100, and 500 were converted to coins because coins last longer in an environment where cash changes hands several times in a cash economy. This was intended to prolong the life of these denominations and, therefore, to save the resources that would otherwise be spent on more frequent printing of the notes. 

We are concerned about the reports that people are rejecting the coins, without good reason. These coins count, and offer people rich benefits, such as helping retailers to exploit smarter pricing by offering exact prices without rounding up to a larger figure, which might unfairly capture value for free from customers. I urge you all to embrace these coins, give and accept them without hesitation because they are valid components of the legal tender of Uganda.

Similarly, I also call upon all the banks to ensure that they maintain the good practice of giving people change of larger for smaller denominations at the banking hall counters as well as in the ATM machines. 

Your customers will continue to value your services more when you demonstrate that you are responsive to their needs, which include availing all the currency denominations in the ATMs, that is, 1000; 5000; 10,000; 20,000; and 50,000.

In addition, I urge banks to harness the power of technology and good relationship management so as to ensure that customers do not spend unnecessarily long durations in winding lines at bank counters, just to do routine banking transactions. Indeed, time is money and the long lines, especially at the popular banks, are proving too costly for the people of Kabarole and the region in general.

Finally, you might recall that during the commemoration of the BoU Golden Jubilee in 2016, the central bank community was joined by well-wishers in a charity walk to raise funds in support of maternal health across the country. I am very pleased to announce that the BoU will make a donation of medical equipment and supplies to Ruteete Health Centre III in Ruteete Subcounty of Kabarole District. The Bank is also donating trees to some of the local schools in this region. These donations symbolise the Bank's gratitude to the communities that host its branches across the country.

I thank you all for listening to me.
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