AN ANALYSIS OF THE EFFECTIVENESS OF CENTRAL BANK IN REGULATING THE BANKING SECTOR IN UGANDA

TABLE OF CONTENTS

DECLARATION ............................................................................................................................. i

APPROVAL ................................................................................................................................... ii

DEDICATION ............................................................................................................................... iii

ACKNOWLEDGEMENT ............................................................................................................. iv

LIST OF ACRONYMS .................................................................................... viii

CHAPTER ONE ............................................................................................................................ 1

GENERAL INTRODUCTION ..................................................................................................... !

1.1 Background ofthe Study ......................................................................................................... :.1

1.2 Statement of the problem ........................................................................................................... 5

1.3 Research questions ..................................................................................................................... 5

1.4 Purpose of the study ................................................................................................................... 6

1.5 Objectives of the study .............................................................................................................. 6

1.6 Literature Review ...................................................................................................................... 6

1.7 Methodology .............................................................................................................................. 9

1.8 Chapterisation ............................................................................................................................ 9

CHAPTER TWO ......................................................................................................................... 11

REGULATORY FRAMEWORK OF BANK OF UGANDA .................................................. ll

2.1 lntroduction .............................................................................................................................. 11

2.2 Bank defined ............................................................................................................................ !!

2.3 Justification for Bank of Uganda Regulatory Framework ....................................................... II

2.3.1 Depositor Protection ............................................................................................................. 11

2.4 Monetary Stability ................................................................................................................... 12

2.5 Efficient and Competitive Financial system ............................................................................ 13

2.6 Consumer Protection ............................................................................................. · .................. 13

2.7 Methods Used in Commercial Bank regulation and Supervision ............................................ l4

2.8 Strengthening Prudential Regulation-and Supervision ............................................................ l6

2.9 Conclusion ....................................................................................................... !&

CHAPTER THREE ..................................................................................................................... 19

COMMERCIALBANK ISSUES TOWARDS REGULATING BANKING SECTOR ........ 19

3.1 Introduction .............................................................................................................................. l9

3.2 The causes of bank failure ....................................................................................................... l9

3.3 Review of Monetary Policy Frameworks ................................................................................ 20

3.4 Legal framework for the operation ofbanking system in Uganda .......................................................... 22

3.5 Banking Regulation in Uganda ................................................................................................ 22

3.6 Legal Framework for the Operation of Banking System ................................ "" ..................... 23

3.7 Licensing .................................................................................................................................. 24

3.8 Legal Control of Banking Staff ............................................................................................... 26

3.9 Code of banking practice in Uganda ....................................................................................... 26

CHAPTER FOUR ....................................................................................................................... 27

BANKING REGULATORY FRAMEWORK, LIMITATIONS AND BANKING CRISIS MANAGEMENT ............................................................... 27

4.1 Basic Principles ofRegulation ................................................................................................. 27

4.2 Limitation faced by Bank of Uganda-regulatory framework Precarious Public institutions .. 27

4.3 Principles in Managing Banking Crises ................................................................................. .31

4.4 Protecting the Payment System .............................................................................................. .31

4.5 Limiting Government Involvement in Banking ...................................................................... 32

4.6 Insolvency Procedures for Banks ........................................................................................... .32

4.7 Sharing the Cost of a Crisis .................................................................................................... .32

4.8 Early Remedial Action ........................................................................................................... .33

4.9 Banking Sector Reforms .......................................................................................................... 33

4.1.0 Factors Influencing Future Regulations ................................................................................. 33

4.1.1 Conclusion ............................................................................................................................. 35

CHAPTER FIVE ......................................................................................................................... 36

RECOMMENDATIONS AND CONCLUSION ....................................................................... 36

5.I Study findings ......................................................................................................................... .36

5.2 Recommendations ................................................................................................................... .37

5.2.1 Clearly Defined Principles ofRegulation ............................................................................ .37

5.3 Strengthening Market Discipline ........................................................................... _. ................ .40

5.4 Avoiding Speculative Bubbles ............................................................................................... .40

5.5 Cross-border Capital Flows .................................................................................................... .41

5.6 Close Coordination between the Central Bank and the Government. .................................... .4I

5.7 Supervision of Financial Conglomerates ................................................................................. 42

5.8 Evaluation of Management Quality ......................................................................................... 42

5.9 Commercial Bank Restructuring ............................................................... , ............................ .42

5.10 Liquidation ............................................................................................................................. 43

5.11 Government Contro1 ............................................................................................................. .43

5.12 Conclusion .......................................................................................................... ." .................. 43

BIBLIOGRAPHY ......................................................................................................................... .44