By our reporter
Bank of Uganda Governor Prof Emmanuel Mutebile has disclosed that bailing out distressed banks would be extremely dangerous because it would allow the banks to continue running in the same manner that caused their crisis.
Mutebile revealed this while speaking at the Annual Bankers Conference that took place at Kampala Serena Hotel on Tuesday.
He said BoU has no obligation to bail out any distressed bank because the central bank’s role is to protect depositors of the commercial banks and not the shareholders.
“The BoU has no obligation to bail out a distressed bank(s) by providing it with liquidity support in the hope that it will somehow be restored to financial health. Such an option would be extremely dangerous,” said Mutebile.
The governor further noted that a bailout would send a signal to other players in the financial sector that mismanagement carries no consequence for the owners and managers which would completely undermine the financial system.
On the other hand, Mutebile also explained that although the central bank was incessantly criticized when it took over Crane Bank in December 2016, BoU had no other option other than putting Crane Bank under administration and later selling it.
But Mutebile admitted that Crane Bank intervention was the most problematic out of the five interventions which the central bank has undertaken since 2010. This was due to its size and magnitude of losses that the bank had incurred. Nonetheless, Mutebile said the Crane Bank debacle was successfully handled.