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Challenges of the Financial Sector

Volatile external conditions
Some of the challenges facing the domestic financial sector in 2012 include the need to monitor volatile external conditions The programmes to support domestic economic transformation that encompasses liberalisation, reform and restructuring, as well as manage the attendant risks from these external and internal developments have been emphasised.

Stability risk
This arises from the enlarged flows of short-term capital as a result of the monetary stimulus of major economies. This may in turn feed into excessive and volatile movements in the currency and financial markets, as well as cause inflationary pressures in both general and asset prices.

Derivative risk (fraud)
There has been increased reported fraud in the sector. Fraud occurs because either gaps exist in the organization’s internal controls or the mechanism of monitoring such controls is compromised. As part of the overall plan for risk management bankers  must  revisit their appetite of taking on high risks in anticipation of high returns. Taking on new high risk investment areas  tends to open gaps in the organisation internal control mechanism. Banks therefore require to balance between the risks and potential returns to shareholders and safety to the depositors’ funds  in the conduct of their  banking business.
source: (

Increasing competition
The liberalisation of financial services sector , as part of the government’s Economic Transformation Programme (ETP), is resulting in the proliferation of new players and the introduction of more innovative products and services into various industry segments. The competition will  most likely impact on both the asset and liability ends of the balance sheet, particularly via the compression in net interest margin.

Networking issues
The data collection and information management infrastructure in the country is still weak and the financial institutions have not developed effective  networks to enable them get  information necessary  for their growth strategies.

Actions being taken to address the challenges in the financial sector



Action being taken


Volatile external conditions

Bank of Uganda Support to domestic economic transformation encompasses liberalisation, reform, restructuring and managing the risks from external and internal developments.


Increasing competition

Financial institutions have tended to offer   different services which have helped them to reduce on the competition.


Stability risk

The government through the police has tried to stabilise the area by providing security to the financial institutions especially on the microeconomic level.


Derivative risk (fraud)

Bank of Uganda have on a continuous basis issued risk management guidelines to

the Supervised Financial Institutions (SFIs)

source: (

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