Bank of Uganda has rapped commercial banks for what it says is their huge appetite for treasury bills and bonds, which is pegging back other sectors of economy.
A senior central bank official said this afternoon that this predilection is not supporting the growth of the financial sector.
Over the last half year, almost all indicators have revealed a struggling state of affairs across sectors in Uganda’s economy. Tax revenue collections have been particularly hard hit as imports drop and general trade contracts.
In a key note address to more than 1,000 accountants attending the 22nd annual conference of Certified Professional Accountants of Uganda which is ongoing at
Imperial Resort Beach Hotel, Entebbe the Deputy Governor BoU, Louis Kasekende, said that commercial banks are more into treasury bills and bonds, where government offers attractive interest rates.
Kasekende said this has increasingly seen commercial banks ignore their wider role of providing credit and enabling economic activity in the broader economy.
“That is not what is going to sustain an economy. So when people see Shs 100 billion in profits, they say that the bank is doing very well. Very well, doing what?
Investing in treasury bills? Banks are supposed to conduct financial intermediation; move resources from savers and support economic activity,” he advised.
He warned that investing in treasury bills was diverting lenders away from the private sector, who have been left to deal with high interest rates on normal lines of credit.
At the same meeting which closes in a day’s time, Auditor General John Muwanga hinted that such decisions are the reason behind the collapse of banks world over.
“When certain banks are going down, it’s Bank of Uganda being blamed. But wherever you are in the world, banks will always collapse and it’s not the fault of the reserve bank…,” he said.
Auditor General John Muwanga equally unimpressed with commercial banks. Net picture.
Kasekende blamed the conservative investment profile preferred by commercial on the boards which vet directors.
“There is need for you when you are vetting members to be on the boards of banks to ensure that they’ve been trained by institutes and are up to date with basic corporate governance principles…which I find lacking in most of the members,” he said.
“I’ve interacted with some of them. But some of them don’t even know the basic principles.”
According to Bank of Uganda, at least half a trillion shillings are raised in monthly transactions on treasury bills and bonds.