BoU set to increase capital buffers for banks by 500%; Credit Institutions by 2,400% and 1,900% for MDIs

Bank of Uganda has kickstarted a process to increase capital buffers for Commercial Banks, Credit Institutions and Micro-Deposit Taking Institutions, a move it says is both timely and long overdue.

CEO East Africa Magazine is privy to a letter written by the Bank of Uganda Executive Director, Dr Tumubweine Twinemanzi, which letter he has confirmed to be true, inviting Chief Executives of the above regulated institutions to discuss the matter on 26^th August 2021.

“In accordance with Section 26(5) of the Financial Institutions Act 2 and Section 15 (3) of the Micro Deposit-Taking Institutions Act 2003, Bank of Uganda (BOU) intends to increase the minimum paid-up capital requirements of Commercial Banks, Credit Institutions (Cis) and Microfinance Deposit-Taking Institutions (MDIs). Under the current legal framework, the paid-up capital for Commercial Banks stands at UGX25.0 billion, last revised in 2010; UGX1 billion for Credit Institutions and UGX500 million for MDIs last revised in 2004 and 2003, respectively,” Dr Twinemanzi writes in the letter, Reference Number EDS.306.2 dated August 20, 2021  

“Consequently, the increase in paid-up capital is long overdue and is intended to match the dynamism of the economy, incentivize shareholder commitment, enable institutions to withstand shocks and to converge with regional peers among whom Uganda effectively has the lowest paid-up capital,” he adds.

According to the letter, BoU intends to increase the capital buffers for banks by 500% from the current UGX25 million to UGX150 billion, while that of Credit Institutions is to be increased to UGX25 billion, from the current UGX1 billion.

Capital requirements for MDIs will go up by 1900% to UGX10 billion, from the current UGX500 million.

“Bank of Uganda is currently undertaking consultations with relevant stakeholders on the proposed increment. Accordingly, this is to invite you to a meeting scheduled for Thursday 26^th August 2021 via Microsoft Teams to discuss this matter,” Mr. Tumubweine wrote.  

It is too early to tell if the move comes to pass, but it is most likely to trigger some industry movements, including but not limited to mergers especially for the locally owned banks without the deep pockets to meet the new requirements.

As of July 2020, there were 25 licensed commercial banks; five Credit Institutions and four MDIs.