The central bank is laying groundwork for a fresh start in a move that seeks to avert recurrence of mistakes in the liquidation and sale of commercial banks in distress.
Whereas the resolution of financial Institutions in distress has been under the supervision department, BoU has now commenced discussions with the Finance ministry on the feasibility of separating supervision function and resolution roles. The plan is to determine the best agency to handle banks in distress.
The House committee that
investigated irregularities in the closure of seven commercial banks
last year, had recommended that the mandate of resolving financial
institutions in distress be separated from the BoU supervision function
in order to mitigate the risk of conflict of interest.
Finance minister Matia Kasaija in the Treasury Memorandum to Parliament last month said with assistance from WB, BoU is in the process of establishing a Bank Resolution Unit/department that shall be responsible for the implementation of the resolution framework, adding that investigation of complaints against BoU liquidation agents is now part of the work undertaken by internal audit.
Under the new reforms at BoU, the framework “will cover the operations of the liquidator including the preparation and maintenance of financial ledgers and records,” the 38-page report adds.
Supervision Vs resolution
To adequately supervise financial institutions in real-time, Mr Kasaija disclosed that BoU supervision directorate has been strengthened through capacity training and attachment to other undisclosed central banks and reputable international training bodies in the area of bank supervision and regulation. “The Supervision Directorate has commenced work on Management Paper for Implementation of real-time bank supervision reporting and financial assessment technology based solution,” the TM report adds in part.
The government has also constituted a special committee composed of all regulatory agencies (such as BoU, Uganda Retirement Benefits Regulatory Authority, and Insurance Regulatory Authority) within the Financial Sector to draft a comprehensive Financial Sector Crisis Management Plan.
The plan, according to Mr Kasaija, “shall form the basis for the amendment of Financial Institutions Act, 2004 and regulations which relate to procedures and guidelines for resolutions of Financial Institutions in distress.”
Besides conducting an Audited Inventory of
all assets and liabilities of affected banks, the central bank is now
required to value all the assets and liabilities of a financial
institution in distress before taking any action in accordance with
Section 95 of the FIA, 2004 (as amended).
After the House Committee on Commissions, Statutory Authorities and State Enterprises, questioned the billions of shillings paid to private lawyers in respect to legal fees, despite having a fully fledged legal department, any decision to hire external professional help is now subjected to the BoU procurement policy as approved by the board chaired by the governor.