Mutebile told a meeting international deposit insurers at Lake Victoria Serena in Kigo on Monday that he was mindful of the risk that deposit insurance would stoke moral hazard through encouraging banks to take greater risks.
BoU governor Tumusiime-Mutebile
The Governor of Bank of
Uganda, Emmanuel Tumusiime-Mutebile has warned banks against taking undue
risks with depositors’ money because the limit of insured deposits has been
increased.
Mutebile
told a meeting on international deposit insurers at Lake Victoria Serena in Kigo on Monday that he was mindful of
the risk that deposit insurance would stoke moral hazard through encouraging
banks to take greater risks.
“I want to
assure you that BoU is committed to effective supervision of bank
risk-taking, with particular attention to the quality and types of assets that
banks acquire as well as the amount of capital that banks hold relative to the
risks they take.”
Government
last week announced that it had increased the deposit insurance limit from Shs
3m to Shs 10m. This means that in case a bank fails, depositors with money
there of up to Shs 10m will be refunded their money.
If one has
more than Shs10m there, they would be paid Shs10m. There is fear that banks can use the liberty of there being increased insured deposits to make greater risks, which lead them to fail.
Mutebile
said “effective deposit insurance can contribute to financial stability only
with strong bank regulation and supervision in place.”
“Deposit
insurance is no substitute for effective regulation and supervision of banks,”
he added.
The deposit insurance
fund is meant to increase confidence in the formal banking system to encourage
people to keep their money in formal banks.