Bank of Uganda Highlights AI as Key to Smarter Banking and Financial Stability

At the recent Annual Meeting on Banking Supervision and Financial Policy Implementation held at Lake Victoria Serena, Kigo, Prof. Augustus Nuwagaba, Deputy Governor of the Bank of Uganda, emphasized the transformative role of Artificial Intelligence (AI) in banking. The two-day meeting brought together deputy governors from the region, experts from the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), and representatives from central banks across Africa.

“Advances in technology and financial innovations are transforming the way the institutions we regulate operate,” said Prof. Nuwagaba. “The recent proliferation of AI presents both benefits and challenges for the financial sector. We, as central bankers, must move with the tides to safeguard financial stability.”

He highlighted practical applications of AI, noting that banks are increasingly using it for credit scoring, chatbots, marketing, risk management, fraud detection, anti-money laundering, and regulatory reporting. For central banks, AI enhances operational efficiency, advanced data analytics, and the ability to deliver tailored financial products.

However, Prof. Nuwagaba also stressed the need for caution. “While AI offers major opportunities, it also comes with risks, including cybersecurity threats, governance challenges, data privacy concerns, and environmental costs,” he explained. “Sound risk management and gradual adaptation are crucial for maintaining stability throughout the AI adoption process.”

To leverage AI effectively, he recommended that central banks:

• Develop clear AI strategies and implementation frameworks aligned with digitalization policies.
• Invest in infrastructure and human resource capacity.
• Support local innovation to strengthen sovereignty.
• Enhance cybersecurity and digital financial literacy.
• Collaborate regionally to share experiences and best practices.

Prof. Nuwagaba concluded, “We must integrate AI into the delivery of our mandates. This transition is unavoidable—it is our new normal. Let us embrace the benefits of AI while working to minimize the associated risks.”

The Bank of Uganda’s commitment to AI underscores its proactive approach to modernizing banking supervision and ensuring financial sector resilience in an increasingly digital world.