Financial Stability Department

 

Financial Stability Analysis: An Overview
The functioning of Uganda’s economy is underpinned by the soundness and efficiency of the financial system and its processes. The financial system comprises of financial institutions, financial markets, and the payment systems, which enable the exchange of goods and services and the allocation of capital. Understanding and analysing the interactions between these institutions and processes and the household sector, corporate sector and other sectors of the economy is essential to maintaining financial stability. While there does not exist a widely accepted definition of financial stability, an understanding of financial stability can be gained by observing factors that are likely to disrupt stability.
A financial system is considered to be experiencing a period of instability when the mechanisms for pricing, allocating and managing financial risks are not functioning well enough to support the performance of the economy. Sources of financial instability are identified through an assessment of the robustness and ability of the various sectors of the economy to absorb negative shocks.
Financial stability analysis, therefore, focuses on determining financial sector soundness, as well as the ability of the sector to absorb disturbances before they evolve into a systemic crisis and impact on economic processes. Financial stability should not be regarded as relating to the banking sector alone, but to the nation’s financial system as a whole, including non-bank financial institutions and its interactions with businesses and households.
 
The Financial Stability Department
The Financial Stability Department in the Bank of Uganda started operations in July 2009. It has the responsibility of contributing to the Bank’s role to maintain a sound financial system. The Bank’s statutory remit on financial stability is backed by the terms of the Bank of Uganda Act (Cap 51 of 2000). The Department is located in the Supervision Function of Bank of Uganda.
 
Purpose of the Department
The purpose of the Department is to identify and assess potential systemic risks to the structure and functioning of the Ugandan financial system and to develop measures to reduce those risks. This includes regular surveillance and monitoring to detect the implications for financial system stability, of domestic as well as external developments that affect the macroeconomy, financial infrastructure, financial markets and the financial sector.
In addition, in future the Department will be undertaking work in a number of areas to improve the arrangements for managing a financial crisis and orderly resolution of distressed financial institutions in a manner conducive to maintenance of financial stability.
The Financial Stability Department aims to develop an assessment framework that will allow for the effective monitoring and analysis of the financial condition and performance of financial intermediaries and markets, identification of potential risks to financial stability and proposal of remedial actions for any recognised vulnerabilities.
The Department provides an overall assessment of the stability of the financial system, through the Financial Stability Report, which is published twice a year, as well as other research papers and publications.

 


Reports
Financial Stability Reports
Annual Supervision Reports