Overview:
Kikubolane understands that the three banks failed to meet the phased capital requirements requiring commercial banks to gradually increase their capital buffers from Shs25 billion by June 2023 and Shs120 billion by June 2024.
Bank of Uganda has approved the request by three commercial banks to downgrade their operations amid continued financial challenges, leading to failure to meet minimum capital requirements.
The Bank of Uganda says ABC Capital Bank (U) Limited, Guaranty Trust Bank (U) Limited, and Opportunity Bank Limited have been authorized to transition from a Tier I Commercial Bank License to a Tier II Credit Institution License effective July 1, 2024.
“These three institutions have been granted a transition period of three (3) months, starting from April 1, 2024, to June 30, 2024, during which they will make adequate arrangements to phase out products and processes that require a Tier I License. This is intended to ensure a smooth service transition for their customers and to mitigate any disruption to financial sector stability,” BoU Deputy Governor Michael Atingi-Ego said in a statement issued on Wednesday, March 27, 2024.
“The change of status of the three commercial banks to credit institutions follows decisions by the respective boards of directors, to adopt a strategic shift and reposition these institutions to serve their core customer base better. The institutions are adequately capitalized and meet the minimum capital requirements for a Tier II License,” he added.
Kikubolane understands that the three banks failed to meet the phased capital requirements requiring commercial banks to gradually increase their capital buffers from Shs25 billion to Shs120 billion by June 2024.
The Ministry of Finance in July 2023 began rolling out the regulations. Under the rules, commercial banks were required to raise their new minimum capital levels to Ush120 billion ($32.5 million) by the close of December 2023. The banks minimum capital levels are scheduled to increase to Ush150 billion ($40.7 million) by end of December 2024, according to a memo issued by Bank of Uganda (BoU).
The new minimum capital requirements for credit institutions, also known as tier-2 financial institutions, will rise from Ush1 billion ($271,028) to Ush25 billion ($6.8 million).
The minimum capital requirements for microfinance deposit-taking institutions (MDIs) increased from Ush500 million ($135,514) introduced in 2003 to Ush10 billion ($2.7 million), due to the amendments.
Forex bureaus need to increase theirs from Ush50 million ($13,551) to Ush200 million ($54,206) following amendments in the Foreign Exchange Act of 2004 that were endorsed by Parliament in June last year.
About 18 out of the 25 commercial banks operating in the country have fulfilled the requirements of Shs120b capital buffers. The remaining banks are said to be mobilising the required capital.