Banking paid-up capital: A tough shift that has resulted in three downgrades and an exit  

In October 2019, the then Bank of Uganda governor Emmanuel Tumusiime Mutebile (late) announced the issuance of two commercial banking licenses - one to Opportunity Bank and another to Afriland First Bank. 

The licenses brought to 26 the number of commercial banks operating in Uganda before Afriland sought to voluntarily exit the market in just under two years in May 2022. 

Afriland, the Central Bank said then in a statement announcing its exit, had not administered any credit line or loans.

Yet it had held the commercial banking license for slightly more than 16 months.

In the period, the bank had managed to chip away a negligible market share of just 0.08 percent and total deposits of Shs958m in a market that is largely unbanked but highly saturated at the top.

The bank, it was further noted, had accumulated an asset base of Shs31.4b, a liability of Shs13.13b, and shareholder equity of Shs8.2b. 

Therefore, beyond the pronouncements by Bank of Uganda, the decision of Afriland to voluntarily exit was deeper than meets the eye, because of a hurried shift in market dynamics that required a quick ramp-up in capital buffers, amid dampened growth and an uncertain market.  

At the time of Afriland’s licensing, just like Opportunity Bank, the banking sector's minimum paid-up capital was just Shs25b. 

However, within just three months, a pronouncement to more than triple it to Shs120 was made by Finance Minister Matia Kasaija in December 2022, who indicated then that the minimum capital requirement would eventually cap to Shs150b by June this year.   

At the time of its exit, whereas Afriland was silent on the issue of the raised minimum capital requirement, its numbers would later tell the story. 

Its mother company - Afriland Group – had indicated it had taken a strategic business review leading to the closure of its unit in Uganda to concentrate on other operations in Cameroon, DR Congo, Equatorial Guinea, Guinea, Liberia, South Sudan, São Tomé and Príncipe and Zambia. 

Thus, the events of 2022 – raising the minimum capital requirements and the eventual exit of Afriland - have come back to tell the story of an industry that has had to ride through a tough shift as Bank of Uganda seeks to strengthen resilience against heightened threats and shocks. 

Whereas Afriland could have taken a cowardly fix, Opportunity Bank has soldiered on but has, after almost three years of operating as a commercial bank, conceded that it needed to downgrade its operations because of the inability to mobilise the required capital. 

In details contained in the fifth Uganda review under the Extended Credit Facility Arrangement published on March 18, government had informed the International Monetary Fund Managing Director Kristalina Georgieva that as of September 2023, just 18 out of 25 banks had complied with the new paid-up capital requirements, while seven were yet to comply. 

The letter, co-signed by Finance Minister Matia Kasaija and Bank of Uganda Deputy Governor Michael Atingi-Ego, noted that of the seven, which represented just 5.1 percent of the banking sector assets, three had applied to downgrade to tier II license (credit institutions), while three were in the process of onboarding a new shareholder, and one was still pursuing its shareholders to recapitalise.  

Indeed in a March 27 notice, Bank of Uganda named Opportunity Bank among the three commercial banks that had applied to downgrade their operations. 

“Three banks [ABC Capital, Guaranty Trust Bank, and Opportunity Bank] have been authorised to transition from tier I commercial bank license to tier II credit institution license,” the notice said, indicating that they had three months from April 1, within which they were required to phase out products and processes that are licensed under tier I (commercial banking). 

A tier II license limits credit or finance companies, under which the three will transition, from establishing checking accounts and trading in foreign exchange. 

However, they are allowed to accept deposits, establish savings accounts, and offer loans backed with or without collateral to savings and non-savings customers.

Therefore, in the three months to June, Opportunity, ABC Capital, and Guaranty Trust Bank will be required to phase out checking accounts, foreign exchange trading, and issuing letters of credit, among other services. 

Background 

Opportunity Bank had previously operated as a credit institution before it was upgraded to a commercial bank in 2019. 

As of June 30, the bank indicated that its assets had grown to Shs384b, of which Shs125.8b were loans and advances, while customer deposits had doubled to Shs247b from Shs126b.

Monitor could not readily get a comment on how Opportunity plans to handle the transition.  

However, on the other hand, in a statement on Wednesday, Guaranty Trust Bank, said the decision to downgrade its operation had become necessary in view of its current paid-up capital position of Shs41b, which was below the Shs150b paid-up capital required for commercial banks.  

Mr Jubril Adeniji, the Guaranty Trust Bank Kenya managing director and head of the East African region, said continuing operations as a tier II is within the bank’s current capital base and “will allow us to play to our core strengths in retail and SME banking”.

“We …. remain committed to championing growth and expanding innovative financial services across Africa and will continue to explore viable opportunities in both existing and new business verticals that guarantee the best use of available capital.”

However, we could not readily establish the bank’s current financial position.  

ABC Capital, which was founded in 1993 as a microfinance institution trading as Capital Finance Corporation before upgrading to a commercial bank, experienced slight declines in its financial position as of December 2022. 

The bank indicated in its financial results that it had an asset base of Shs62.1b, which was a slight reduction from Shs62.28b in December 2021.

The details above tell the story of a difficult shift, whose impact will fully be understood after June 30. 

Still searching 

For now, Monitor understands that two banks are still in the process of onboarding new shareholders, while one is still pursuing its shareholders for recapitalisation. 

The Central Bank declined to comment on the process with Mr Kenneth Egesa, the Bank of Uganda director of communications, saying: “We will advise as soon as we hear from our colleagues who are handling this work.”

In January, Finance Trust Bank announced it had signed a definitive agreement, in which Access Holdings, the parent company of Nigerian Access Bank, would acquire a majority stake with the bank’s institutional shareholders exiting for a strategic long-term investor.

Monitor understands Finance Trust Bank was one of the three banks that had been referenced in the IMF Uganda review as seeking new shareholders to recapitalise its operations. 

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