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How Huge Operational Losses Have Put BoU In Trouble

Bank of Uganda (BoU), the regulator of the banking industry is in a tight corner after recording unprecedented operating losses in the last few years.

This state of affairs has left the Central Bank with less capital, a development that may adversely affect the banking industry and the economy at large.

Government’s request to Parliament to recapitalize BoU with Shs504bn was on Thursday rejected by lawmakers on grounds that it came in late when the 2018/19 budget is about to be passed and  approved.

Making the request to Parliament, Finance State Minister, David Bahati revealed that BoU had made operating losses of Shs457bn.

According to Auditor General’s Report for 2017, BoU which is 100% owned by the Government of Uganda has been recording losses in the past years.

The John F.S. Muwanga report says BoU made a loss of Shs72.55bn in 2016/17 Financial Year, down from Shs164.8bn loss in 2015/16.

The report also analysed the state enterprises’ liquidity ratios to determine their ability to use current assets to pay off current obligations/debt and still be able to fund their outgoing operations.

“The higher the ratio the better. The ideal liquidity ratio threshold is 1,” Muwanga says in the report, adding: “This ratio is a comparison between an enterprise’s current assets to its current liabilities.”

BoU’s liquidity ratio was put at 1.2 in 2016/17, from 1.20 recorded in 2015/16.

On Return on Assets, an indicator of the profitability of an enterprise relative to its total assets and how efficient Management is using the enterprise’s assets to generate earnings, the report put BoU at -1% in 2016/17 from -1.40% in 2015/16.

It should be noted that this isn’t the first time for government to seek BoU recapitalization. In May 2015, the Central Bank was recapitalized with Shs410bn after it had a deficit of Shs144bn. In June 2013, BoU was also recapitalized with Shs150bn after making a loss of 600bn in 2011/12 Financial Year.

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