Bank of Uganda closes Mercantile Credit Bank Limited

Bank of Uganda has on Tuesday June 18 closed Mercantile Credit Bank Limited (MCB), a tier II financial institution, due to poor financial standing, marking the second closure of a financial institution by the regulator this year. In January, BOU closed EFC Uganda Limited, a microfinance company, due to similar reasons.

BOU’s decision, which also places Mercantile Credit Bank, located on Old Portbell Rd, under liquidation, revoked its license, and ordered the winding up of its affairs, effective today, Tuesday.

“The continuation of Mercantile Credit Bank Limited’s activities is detrimental to the interests of its depositors due to the institution’s failure to resolve its significant undercapitalization, poor corporate governance, and insolvency,” said Michael Atingi-Ego, Deputy Governor of the Bank of Uganda.

This move is aimed at protecting the interests of depositors and maintaining the stability of the financial system, a trend that has been seen in recent times. In January, BOU closed EFC Uganda Limited, citing similar reasons.

“The Bank of Uganda has determined that the closure of Mercantile Credit Bank Limited is necessary to protect the interests of its depositors and maintain the stability of the financial system,” Atingi-Ego added.

The regulator has assured depositors that they will be informed of arrangements to access the insured portion of their deposits, while creditors have 30 days to submit claims. Borrowers are directed to continue servicing their loans at Bank of Uganda offices.

Last year, Parliament recommended a minimum capital requirement for Tier 3 MDI of 5 billion shillings, instead of the 10 billion that had been recommended by BOU, aiming to strengthen the financial industry.

MCB was registered as a Merchant Bank in 1981 and commenced operations in 1986. Following the review of the banking laws in Uganda that led to the financial Institutions Act of 2004, MCB was categorised as a Tier II Institution. As a tier II financial institution, MCB is allowed to establish customer savings and fixed deposit accounts and other core banking products including provision of credit facilities, fund transfers and foreign exchange trading given the nature of its licence.

As of December 2011, the bank’s total assets exceeded US$6.6 million (UGX:16.5 billion), with shareholders’ equity of approximately US$1.6 million (UGX:4 billion). In December 2012, the total assets were estimated at US$9.9 million (UGX:25 billion) following its growth in operations.