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Honourable Members:

The Management of the Bank of Uganda are here in response


to your invitation to appear before COSASE on issues raised
in the Auditor General’s Report on Defunct Banks.
I bring apologies from the Board Members, who have not
been able to join us today due to other engagements.
In conducting the supervisory role, the primary objective of
the Bank of Uganda is to ensure the stability and soundness
of the banking system and protection of depositors’
interests.
While performing this role, there is a possibility that a
financial institution may run into problems. In such
circumstances, the Financial Institutions Act 2004,
prescribes the type of actions the Central Bank should take
in the different circumstances. They include; issuance of
directives on corrective actions that the financial institutions
must comply with, placing the Institution under statutory
management or receivership and/or liquidation, depending
on the nature of the problem.
The 7 defunct banks in the Auditor General’s Report were
put under resolution largely due to insolvency problems. In
conducting bank resolution, the Central Bank is mindful of
the need for the depositors to access their funds in the
shortest time possible, keeping the cost of resolution low but
also most importantly the need to protect the remaining part

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of the banking industry from any contagion effect or
systemic shocks.
While carrying out bank resolution, in a number of cases, the
Central Bank identified other banks that purchased the
assets and assumed liabilities of the banks under resolution.
The decisions and actions of selling the assets of banks
placed under resolution, were based on the objectives of
protecting the depositors’ funds, increasing confidence in
the banking system and fostering financial sector stability,
which is the core reason for our existence as an Institution.
Please note that over the years, Bank of Uganda ensured that
the bank resolutions were conducted seamlessly without
causing instability in the financial sector and protecting the
interests of the depositors.
I would like to re-emphasize to this Committee and the
public that the principal objective of financial regulation is to
maintain stability and soundness of the banking system. This
would greatly be undermined if there is erosion of
confidence in the key stakeholder i.e. the Depositors. Indeed
in the ranking of claims in an insolvency of a financial
institution, the Deposit Protection Fund ranks first, next, is
the liquidator’s expenses, then the wages of employees of
the institution. These are followed by the secured creditors,
then unsecured deposits, followed by other types of
creditors.

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It is only and only if, there are residual assets, that the
shareholders get anything since they rank at the very bottom
of the distribution order.
Honourable Members; resolution of banks is a complex
exercise and each bank being resolved has its own unique
circumstances. There are a number of challenges
encountered during resolution. One of the main challenges is
litigations by the different stakeholders. There have been
several court cases against banks under resolution spanning
many years.
The other challenge in bank resolution relates to the
difficulty in collecting and recovering of loans due to
encumbrances placed on the collaterals, unsecured and
poorly documented loans. There are also delays that result
from the requirement to verify creditors and their claims
particularly for those banks with poor documentation. This
may also apply to the depositors. All these challenges have
had implications on the timeliness of bank resolutions.
Notwithstanding the challenges, we would like to assure you
that progress is being made to conclude bank resolutions. In
addition to paying off the depositors, we have twice paid the
creditors of Cooperative Bank, Greenland Bank and
International Credit Bank from the proceeds of the
liquidation on a pro rata basis.

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Furthermore, in September this year, we made a final call on
the creditors of Greenland Bank, Cooperative Bank and
Global Trust Bank in liquidation, to settle claims.

We also continue to pursue the pending court cases that are


currently affecting the conclusion of the resolution of some
banks.
We appreciate the heightened interest in matters
surrounding the resolution of defunct banks, but our hands
are tied and Bank of Uganda has to operate within the law.
Our appeal to the Committee is that as you engage us, be
mindful of the ongoing court cases, which have implications
on how much information we can divulge on the affected
banks.
Thank you for listening to me.