Govt should encourage bank mergers, says Byarugaba
Byarugaba says that smaller banks should merge with big ones to strengthen their resilience and capacity. Photo / File
What you need to know:
- Richard Byarugaba says the banking sector remains fragmented with numerous players, which requires consolidation where smaller banks merge with bigger ones
Former National Social Security Fund managing director Richard Byarugaba has said government should encourage mergers in banking to prevent future closure of financial institutions.
Speaking during a dialogue on bank closures organised by Kigo Thinkers in Kampala, Mr Byarugaba said the banking sector remained fragmented with numerous players, noting that government should encourage consolidation where smaller banks merge with bigger ones to strengthen their resilience against systemic risks, regional uncertainty and business separation risks.
“The financial sector is facing challenges, largely due to global trends, which have a direct impact on us. The banking sector remains fragmented with numerous players,” he said.
In 2022, government revised the minimum capital requirement for all financial institutions, which required banks to increase their paid-up capital from Shs25b to Shs120b by December 2023 and to Shs150b by June 2024.
However, the revision forced three commercial banks – Opportunity, ABC Capital and Guaranty Trust Bank - to downgrade their operations to tier two, while others such as Finance Trust Bank sold large shares of their holdings to raise the required capital.
The revision also forced voluntary exits such as Afriland First Bank in 2022, and the eventual closures of Mercantile Credit Bank and EFC Uganda.
Over the years, several banks including Greenland, Teefe, International Credit Bank, National Bank of Commerce, Global Trust and Crane, have been closed over capital inadequacy.
Speaking at the same event, Mr Phillip Katamba, a financial adviser, wondered why government had only increased the minimum capital requirement for banks without increasing the Deposit Protection Fund.
“So far, regulators have already increased the amount of capital needed for operating a bank. They should have been more holistic in looking at the entire banking sector. Why increase for commercial banks and leave out the protected deposit?,” Mr Katamba wondered.
The Deposit Protection Fund ensures that in case of closure of a financial institution, all depositors with Shs10m and below are paid their money without waiting for liquidation of the financial institution.
The bigger depositors are paid after government has liquidated the defunct financial institution in question.
