Draft Amendments to the Financial Institutions (Liquidity) Regulations 2005 and ILAAP Guidelines

BANK OF UGANDA

OFFICE OF THE EXECUTIVE DIRECTOR SUPERVISION

EDS.306.2

23rd November 2021

37-45 KAMPALA ROAD, P.O. BOX 7120, KAMPALA

DIRECT LINE: 256-414-230051 GENERAL LINE: 256-414-258441 Ext 2403 FAX LINE: 256-414-258515, 256-414-61059 CABLES: UGABANK Email: info@bou.or.ug Web site: www.bou.or.ug

Circular to all Chief Executives of Commercial Banks, Credit Institutions and Microfinance Deposit Taking Institutions

Draft Amendments to the Financial Institutions (Liquidity) Regulations, 2005 and Guidelines on Internal Liquidity Adequacy Assessment Process (ILAAP)

In a bid to enhance the resilience of Supervised Financial Institutions (SFIs) and the regulatory framework, Bank of Uganda (BOU) embarked on the review and amendment of the Financial Institutions (Liquidity) Regulations, 2005. The proposed amendments are intended to: enhance SFI resilience to heightening of liquidity risk given the evolution and growth of the financial system, increasing complexity of product offerings therein, and associated risks therefrom; ensure national compliance with the EAC Monetary Affairs Committee decisions on the harmonization and convergence of supervisory practices across the EAC; and to facilitate implementation of the Basel III regulatory framework for liquidity risk.

The proposed amendments contain three main enhancements:

1. Expansion of the list of eligible Liquid Assets given recent market developments.
2. Introduction of two new liquidity measures as prudential requirements, namely: The Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). The key objective of the LCR is to ensure that SFIs maintain an adequate stock of unencumbered high quality liquid assets to meet their liquidity needs over a 3- calendar day liquidity stressed period. With respect to the NSFR, it is a measure to assess SFI reliance on short-term wholesale funding, and one that enhances funding risk assessments across all on- and off-balance sheet items.
3. A prudential requirement for SFIs to periodically undertake an Internal Liquidity Adequacy Assessment Process (ILAAP) to clearly identify and manage risks to their liquidity.

This is to forward to you the draft amendments to the Financial Institutions (Liquidity) Regulations and the Guidelines for ILAAP, for your comments.

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Mission: To Foster Price Stability and a Sound Financial System Vision: To be a Centre of Excellence in Upholding Macroeconomic Stability

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Comments should be forwarded to: JNansamba@bou.or.ug and pkahwa@bou.or.ug; by close of business on 3rd December 2021.

[Signature]

Tumubweinee Twinemanzi (Dr.) Executive Director Supervision

Copy: Director Commercial Banking Director NBFI Director Financial Stability Legal Counsel

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