BoU closes Mercantile Credit Bank 

Mercantile Credit Bank becomes the second financial institution to be closed in less than a year. Photo / File 

What you need to know:

  • Bank of Uganda says it has closed Mercantile Credit Bank over poor corporate governance and failure to recapitalise 

Bank of Uganda (BoU) has Tuesday announced the closure of Mercantile Credit Bank over poor corporate governance and failure to recapitalise.  

In a press briefing Tuesday Bank of Uganda deputy governor Michael Atingi-Ego, said the central had revoked the Tier II license of Mercantile and placed it under liquidation. 

“Bank of Uganda (BoU) has, effective today, June 18, 2024, placed Mercantile Credit Bank under liquidation, revoked its license, and made an order for the winding up of its affairs,” he said noting that the decision had been reached after determining that the continuation of Mercantile activities was detrimental to the interests of its depositors due to failure to resolve its significant undercapitalisation, poor corporate governance, and insolvency. 

This is the second financial institution to be closed in less than a year. 

In January, Bank of Uganda announced the closure of EFC Uganda over failure to resolve undercapitalisation challenges and poor corporate governance.  

The closures come after Finance Minister Matia Kasaija in 2022 announced a revision of the minimum capital requirements for credit institutions, also known as Tier II financial institutions, increasing it from Shs1b to Shs25b. 

The minister also announced a revision for commercial banks to Shs120b by the close of December 2023, which is expected to increase to Shs150b by the end of this month. 

The increase has seen some financial institutions struggle to meet the new paid-up capital with some applying to downgrade from commercial banks to credit institutions. 

In March, Bank of Uganda granted Opportunity Bank, Guaranty Trust Bank, and ABC Capital permission to downgrade from Tier I to Tier II financial institutions after they indicated that they would not be in position to meet the new paid-up capital of Shs150b. 

On Tuesday, Bank of Uganda said 91 percent of Mercantile Credit Bank depositors would be paid their money through the Deposit Protection Fund, which insures deposits of between Shs10m and below, while the 9 percent would be paid through the liquidation process. 

The Deposit Protection Fund acts as an insurance through which depositors with less than Shs10m are paid if a supervised financial institution closes. 

Dr Atingi-Ego said Bank of Uganda and the Deposit Protection Fund were also working on an arrangement through which depositors would be able to access the insured portion of their deposit, while the uninsured portion, which is above Shs10m, would be handled through the liquidation process. 

The central bank also indicated that all creditors will, on a date it did not indicate, be required to submit their claims to the Office of the Director, Financial Stability, Bank of Uganda, within 30 days from today, while borrowers with running credit facilities must continue servicing their loans through Bank of Uganda offices and its branches. 

Mercantile Credit Bank was incorporated in Uganda in December 1981 but commenced operations in July 1986. It has been operating as a Tier II financial institution since 2004.