Commercial banks solid enough to withstand shocks, says BoU 

Bank of Uganda conducts stress tests on banks to determine whether they  have enough capital to withstand shocks. Photo | file 

What you need to know:

At least five banks, which hold 57 percent of the banking sector assets, were tested last year to determine whether they had  enough capital to withstand shocks 

Bank of Uganda conducted stress tests on five banks last year to test resilience, according to Deputy Governor Michael Atingi-Ego. 

The stress tests, he said, were conducted on systemically important domestic banks to ensure that they were safe and sound and could support the economy through different shocks. 

Stress tests are conducted on banks to determine whether they have enough capital to withstand shocks. 

Speaking during the 27th Annual Seminar for the Institute of Certified Public Accountants of Uganda in Entebbe, Wakiso District on Wednesday, Dr Atingi-Ego, said the tests, which had sought to ensure that banks could support the economy through harder times, retuned positive, noting that the resilience that had been built over the years following the 2007/08 financial crisis had put the financial system in a better position to absorb Covid-19 related risks and onward shocks. 

“This matters greatly because having a resilient financial system means that business lending is sustained. We went further to provide for accommodative policy measures to ensure that the financial institutions had access to liquidity even as they re-structured performing loans that had been impacted by Covid-19,” he said.

In its 2020 Annual Supervision Report, Bank of Uganda indicated that the five Domestic Systemically Important Banks include Stanbic, Standard Chartered, Centenary, dfcu and Absa. 

The five banks, the report indicated, at least hold 57 percent of banking sector assets and their soundness is an indicator of the wider health of the banking sector. 

Dr Atingi-Ego also indicated that Covid-19 had presented policy makers and financial markets regulators with the first major test of the post-financial crisis reforms requiring prudent and balanced management of the economy to mitigate existing challenges. 

However, he also noted that whereas current geopolitical conflicts have generated new shocks, they have had “significant influence in re-shaping the way we work [remote working], meet [virtual meetings] and transact [e-payments]”, adding that the resilience built over the years   prevented the financial system from failing during Covid-19 and continue to keep it afloat amid new shocks. 

Bank of Uganda has previously indicated that the banking sector remains sound and well capitalised. 

The sector has also reported a reduction in non-performing loans and a growth across all segments, among which include deposits, loans and advances, among others. 

Dr Atingi-Ego noted that the banking sector must leverage on a growing trend of financial technology (Fintech) to tap into infinite possibilities through which the sector will achieve shared and inclusive growth. 

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