The Potential Implications of the Bank of Uganda Probe for Uganda’s Financial Sector


By Gayathry Venugopal- Research Analyst EPRC

BoU headquarters in Kampala- Courtesy Photo
Alleged irregularities and illegalities committed by Bank of Uganda (BoU) in its closure and sale of seven commercial banks and the subsequent, ongoing Parliamentary probe has not only raised questions on the central bank’s activity, but on Uganda’s financial sector as a whole.



Over the past 25 years, seven commercial banks were closed by BoU due to non-performance. These were Teefe Bank, International Credit Bank, Greenland Bank, Cooperative Bank, Global Trust Bank Ltd, National Bank of Commerce and Crane Bank Limited.

Detailed allegations surrounding irregular and illegal activity surfaced in broader public discourse following a report from the Auditor-General, John Muwanga, which highlighted poor conduct and mismanagement of the liquidation processes of failed banks. Deficient recordkeeping was such an example of this poor conduct. BoU was unable to provide records related to the liquidation processes, except for those kept by external organisations hired by BoU to handle the liquidation.

The report, through examining the steps taken by BoU to liquidate the commercial banks, alleges corruption due to the lack of evidence to support officials’ claims that appropriate processes were adequately followed. In addition, evidence of fraud and collusion by BoU officials, transaction advisors, and buyers was highlighted.

The report outlined, among other examples, that the International Credit Bank, Greenland Bank, Cooperative Bank, Global Trust Bank and National Bank of Commerce were sold out at a discount of 80 per cent. The Auditor-General also noted that it is most likely that the motivations behind these actions were personal gain, rather than to stabilise and benefit the financial sector.

The allegations and the ongoing investigation by the Parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) raises concerns over the state of monetary policy management and the robustness of Ugandan banks.

Transparency and fairness in decision-making within BoU has been and will continue to be under greater scrutiny, for example, the reluctance of the central bank to publish minutes of  its monetary policy committee meetings (as is the case in some other countries) has been raised in the investigation and in media discourse.

As more details of BoU’s mismanagement problems emerge through the parliamentary probe, questions over the impact of mismanagement on core policy functions have been raised, including on determining and managing interest rates and exchange rates, monitoring of cash in circulation and controlling inflation.

The full impact of the allegations and the ongoing probe remains too early to be seen. It should be noted that the financial sector is vulnerable to negative sentiments and perceptions. As such, further revelations as the investigation progresses could have a substantial and detrimental impact to the financial sector, and Uganda’s economy as a whole.

Further damage to public confidence could send shocks in the financial market as well as affect the exchange rate. It could also affect foreign direct investment (FDI) inflows to the country – a concern that has been expressed by some donor states including Norway and the Netherlands, who requested that Uganda protect banks, specifically DFCU, from negative publicity out of fears that it will affect investor confidence.

The full impact will be dependent on the extent of BoU’s conduct and mismanagement problems which, if discovered to be more extensive than previously thought, could even perhaps result in capital flight.

The uncertainty surrounding the banking sector is likely to generate negative implications. However, if the probe is conducted effectively and those responsible are held accountable with reforms put in place, it could lead to longer-term benefits to Uganda’s financial sector, including more transparent management and decision-making, improved public confidence in Uganda’s financial sector and ultimately greater stability and predictability.

Gayathry Venugopal is a Macroeconomics Research Analyst at the Economic Policy Research Centre (EPRC)

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