Bank of Uganda Deputy Governor Dr. Louis Kasekende has said that it’s not the role of a Central Bank or Bank of Uganda to bail out banks in insolvency but can bail out those that have liquidity challenges.
Kasekende who was officiating at a function where Equity Bank Uganda was marking 10 years anniversary and also moved their headquarters to the 16 Floor Church House Building in central Kampala said Bank of Uganda can only provide facilities for liquidity support that are well known to all Commercial Banks operating in Uganda but cannot bail out insolvent banks.
“Bank of Uganda can only bail out a bank that has liquidity problems but not that in insolvency,” said Kasekende.
Liquidity problem or risk is when a company or a bank may be unable to meet short term financial demands while a bank failure or a bank in insolvency occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities.
Insolvency can be defined as the inability to pay ones debts. This usually happens for one of two reasons. Firstly, for some reason the bank may end up owing more than it owns or is owed. In accounting terminology, this means its assets are worth less than its liabilities.
Secondly, a bank may become insolvent if it cannot pay its debts as they fall due, even though its assets may be worth more than its liabilities. This is known as cash flow insolvency, or a ‘lack of liquidity’.
Kasekende reported that the Non-Performing loans in most Commercial Banks in Uganda have gone down tremendously giving thumbs up to all banks that have managed to reduce them and the cost of doing business.
Equity Bank has been on a growth trajectory and currently stands at position 8 in the Ugandan market by total assets.
It is one of the fastest growing banks in Uganda, with a large network of 33 branches, 971 agents, 945 Points of Sales Terminals that support merchant banking. It has a total asset base of Ush1.03 trillion.
Equity Bank Managing Director Samuel Kirubi said the move symbolizes their determination to continuously improve their offering to people by ensuring that their products and services are accessible and convenient.
“We see a great future with our digital banking platform because it gives our customers the freedom to do banking without constraints of time and distance,” said Kirubi.
Dr. James Mwangi the Equity Bank Group Managing Director and CEO said they see a great opportunity to position their selves for growth as envisioned in Uganda’s vision 2020.
“As a bank, we are facing the future with a strengthened resolve and commitment. We will dedicate our efforts to enhance partnerships that will enable every citizen to become a major driver of their own destiny by seizing emergency economic opportunities in agriculture, oil and gas, manufacturing and export businesses,” said Mwangi.
He said, Equity Bank has lending capacity of up to $250 million in case the government of Uganda can approach them to support the oil and gas sector.