Uganda’s Financial Institution Risk Assessment: A Call to Action

Kampala, Uganda - A Call to Emphasize Risk Management in Banking Sector

In a recent speech delivered at the Banking Industry Stakeholders’ Roundtable Forum in Kampala, Professor Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda, highlighted the significance of risk management in the country’s financial institutions. The rapid innovations in the banking sector and internationalization of financial flows have presented major opportunities for banks, but also increased complex and variable risks.

Traditional Approach to Risk Management No Longer Sufficient

According to Professor Mutebile, the traditional approach to bank risk management is no longer sufficient, and banks must improve their financial risk management capabilities to survive. He noted that frauds are increasing incidents in the banking industry, but emphasized that fraud is a derivative risk that can be mitigated through effective internal controls and monitoring.

The Role of Bank of Uganda

The Governor highlighted the role of the Bank of Uganda in promoting good corporate governance and risk management practices among supervised financial institutions. The bank has issued revised guidelines on risk management, which stress the importance of board of directors’ involvement in setting the tone at the top. He also emphasized the need for banks to possess a reasonable knowledge of risks specific to their activities.

Proposals for Improving Risk Management Systems

Professor Mutebile proposed two-way measures to improve risk management systems and maintain a strong financial sector:

Internal Measures

• Rethink strategy of elevating scrutiny on employees
• Enhance risk profiling of customers
• Invest in employee training
• Exhibit high standards of good corporate governance

External Measures

• Enact punitive legislation to deter fraudsters
• Create specialized financial investigative sections of police
• Revive project of establishing common infrastructure like the National Identification Card

Conclusion

The Governor concluded by emphasizing the need for banks to rethink their risk appetite and adopt a prudent balance between risks and potential returns.

Call to Action

The speech comes at a time when the banking industry in Uganda is facing challenges related to frauds, and the Bank of Uganda is working to mitigate these risks through its risk-based supervision methodology and credit reference bureau. The call to action by Professor Mutebile highlights the need for banks to take a proactive approach to risk management and adopt best practices to ensure the stability and growth of the financial sector.