In March 2024, Bank of Uganda indicated that three banks, including Opportunity, had applied to downgrade their operations to credit institutions. Photo / File
When Finance Minister Matia Kasaija signed off on new capital requirements in November 2022, it sounded like just another line.
Commercial banks were expected to multiply their paid-up capital six-fold - from Shs25b to Shs120b, and then bump it further to Shs150b by mid-2024.
In a July 2023 circular, Bank of Uganda said most banks had complied - or were “significantly advanced” in capital restoration plans.
From the outside, it all looked okay, yet behind closed boardroom doors, some institutions were boiling - quietly courting investors, while others prepared to reinvent themselves.
By December 2023, the central bank admitted - carefully - that four institutions had not yet met the capital thresholds.
However, a more revealing picture emerged in a March 2024 letter of intent to the IMF, in which the Ministry of Finance and Bank of Uganda disclosed that three banks had applied to downgrade to tier II (credit institution).
Subsequently, on March 27, Bank of Uganda confirmed that ABC Capital, Opportunity Bank, and Guaranty Trust Bank had taken a pragmatic decision to downgrade.
The three have had ample time to play in the new league – tier II – and in this article, we examine how they fared in the first 12 months to December 2024.
ABC Capital: A quiet comeback
ABC Capital has made an impressive recovery, bouncing back from a net loss of Shs515m in 2023 to a modest profit of Shs135m in 2024.
The shift, along with positive changes in return on assets and return on equity, from negative to 0.23 percent and 0.42 percent, respectively, shows that the credit institution is slowly regaining its footing in terms of efficiency.
Progress is slow, but it's definitely heading in the right direction.
ABC's total assets remained almost unchanged, growing slightly from Shs59.1b to Shs59.2b, which suggests that there was little expansion.
Customer deposits grew just slightly, from Shs25b to Shs26b, suggesting that while customer confidence could still be fragile, it hasn't deteriorated.
The loan book, however, shrank from Shs23.2b to Shs21b, which reflects a cautious lending approach.
ABC also registered a decrease in non-performing loans from 4.96 percent to 3.19 percent, while provisioning for bad loans also dropped from Shs1.3b to Shs651m, signalling an improvement in the bank’s loan book.
Capital adequacy stands at a healthy 79.49 percent, which could be a reflection of the credit institution’s reluctance to lend aggressively. While the liquidity ratio remains stable at 2.16 percent, reassuring, though not solid.
In short, ABC is in a recovery phase, which could be an indication that the downgrade it took might have given it a much-needed lull in taking steady steps toward regaining its stability.
Opportunity Bank: A solid performance
Opportunity registered a steady growth, with profits rising from Shs2.79b in 2023 to Shs3.18b in 2024.
On the other hand, return on assets and return on equity rose from 1.12 percent to 1.27 percent, and from 7.51 percent to 7.9 percent, respectively, while total assets grew by a healthy 12 percent (from Shs237b to Shs266b).
However, deposits dropped slightly (from Shs155.4b to Shs147.5b), but the bank expanded its loan book from Shs141b to Shs158b, indicating the bank’s willingness to take on more risk.
Opportunity also registered a drop in non-performing loans from 5.11 percent to 4.37 percent, while loan write-offs reduced by half (from Shs8.8b to Shs4.1b).
The bank’s capital adequacy ratio inched up from 20.71 percent to 20.74 percent - a slight but steady improvement that suggests the bank is maintaining a solid cushion even as it expands its loan book.
Available data, therefore, places Opportunity Bank as the best performer among the three with strong earnings and solid loan growth.
Guaranty Trust Bank: From profit to crisis
Guaranty Trust Bank has faced a dramatic downturn, with profits plunging from Shs1.63b in 2023 to a loss of Shs3.25b in 2024.
This sharp reversal is reflected in the significant decline in return on assets, which dropped from 1.47 percent to -1.43 percent, while return on equity fell from 6.82 percent to -7.56 percent, which signals deep operational challenges.
The bank’s balance sheet contracted significantly, with assets shrinking from Shs249.6b to Shs215.3b, while deposits also dropped from Shs186.3b to Shs167.4b.
Guaranty’s loan book also shrank, from Shs55.8b to Shs46.5b, while non-performing loans declined from a worrying 26.79 percent to 7.23 percent.
However, the Shs7.4b in loan loss provisions points to the bank’s efforts to clean up its balance sheet by writing off bad debts.
On the capital front, Guaranty’s capital adequacy ratio slipped from 45.45 percent to 38.71 percent, which, while still above regulatory minimums, raises concerns.
The bank’s liquidity remains manageable but slightly decreased, reflecting its focus on conserving cash.
In short, Guaranty’s significant loss, shrinking assets, and large provisions suggest the bank is in a painful process to clean up its bad debts and stabilize operations.
The numbers also tell that the bank has, in the period, had to take drastic actions to stop the financial bleeding.
Investment shifts
Investment strategies varied significantly across banks. ABC Capital and Opportunity Bank kept their portfolios relatively stable, focusing primarily on government securities and loans.
On the other hand, Guaranty shifted focus to more conservative investments, channeling additional funds into loan loss provisions.
This shift illustrates Guaranty’s strategy to protect itself from further losses, even at the cost of slower growth.
Tighter cost control
In terms of cost management, Opportunity and ABC demonstrated disciplined financial controls, with ABC in particular showing significant improvement in asset quality by reducing loan provisions from Shs1.3b to Shs651m.
On the other hand, Guaranty, however, faced higher costs, particularly in loan loss provisions, as it worked to stabilise its balance sheet.
Where money came from
Both Opportunity and ABC managed to grow their interest income, driven by strong loan demand despite their downgrades.
However, Guaranty saw a significant dip in income, largely due to the contraction of its loan book and asset base.
Non-interest income, which includes fees and foreign exchange activities, emerged as a critical lifeline for Opportunity, which, in particular, leveraged its mobile banking and digital services to maintain a healthy stream of non-interest income to offset weaker lending revenues.
