Impact on the Financial Sector
As I have already mentioned, the trigger for the global economic crisis was a severe financial crisis in the advanced economies, characterised by the collapse of major financial institutions and the subsequent credit crunch. In September 2008, the financial system in the advanced economies was on the brink of systemic failure and was only rescued by enormous levels of financial support and guarantees from central banks and finance ministries. Although the contagion from the financial crisis spread to the financial systems in many countries of the world, the Ugandan financial system was largely unaffected. The reason for this is, firstly, that our financial system is dominated by commercial banks and these banks had very little exposure to either the type of toxic assets which caused havoc in the advanced economies (most notably mortgage backed securities) or to any of the failed financial institutions in the advanced economies. Secondly, banks in Uganda do not rely on short term foreign borrowing to mobilise funds, unlike for example banks in the transition economies of Eastern Europe, and as a consequence they have not suffered a liquidity crunch from the drying up of access to foreign loans. The Bank of Uganda monitors the financial condition of commercial banks closely. Our data indicate that the Ugandan banking system did not suffer any outflow of funds as a result of the global financial crisis: in fact the total liabilities of the banking system increased in every quarter of the 2008/09 fiscal year. Consequently there has been no threat to banking system liquidity from the global financial crisis. In addition, there was virtually no impairment to the asset quality of the banks in the last fiscal year, while the key measure of capital adequacy - core capital to risk weighted assets - remained at a very healthy 19 percent during the fiscal year.
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