Three banks downgrade to credit institutions

A client receives money from a teller in a bank in Kampala City in 2022. PHOTO/file

What you need to know:

  • The three commercial banks according to BoU are; ABC Capital Bank (U) Limited, Guaranty Trust Bank (U) Limited, and Opportunity Bank Limited.

The Bank of Uganda has approved an application by three Commercial Banks to downgrade their operations to Credit Institutions. 

The three commercial banks according to BoU are; ABC Capital Bank (U) Limited, Guaranty Trust Bank (U) Limited, and Opportunity Bank Limited.

These banks have been authorized a three-month period to transition starting from April 1, 2024, to June 30, 2024.

In a public notice assigned by Deputy Governor Michael Atingi-Ego, the three-month transition period will allow these commercial banks to make adequate arrangements to phase out products and processes that require a Tier I license.

“This is intended to ensure a smooth service transition for their customers and to mitigate any disruption to financial sector stability,” Mr Atingi-Ego said.


The application followed the anticipated failure to fulfil phased capital requirements that had required commercial banks to increase their capital buffers from Shs25b to Shs120b by June 2022 and to Shs150b by June 30, 2024. 

The Revision of the Minimum Capital Requirement Instrument was announced by Finance Minister Matia Kasaija in June 2022, before taking effect on December 16 of the same year.  

The instrument gives financial institutions, including commercial banks and credit institutions, until June 30 to have fulfilled the required capital bands to strengthen and build commercial banks’ liquidity buffers and ensure resilience against shocks. 

In a letter of intent contained in the Uganda Fifth review under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria, the government informed International Monetary Fund Managing Director Kristalina Georgieva that as of end-September 2023, at least 18 out of 25 commercial banks had complied with the new paid-up capital requirement of Shs120b, expected to cap at Shs150b by June 30. 

However, the letter noted, the remaining seven, which represented at least 5.1 percent of the banking sector assets, had either applied to downgrade or were still in the process of searching for capital injections. 

“Three [commercial banks] applied to downgrade to tier II [credit institution] license, three are in the process of onboarding a new shareholder, and one is still pursuing its shareholders for recapitalization,” the letter of intent, co-signed by Finance Minister Matia Kasaija and Bank of Uganda Deputy Governor Michael Atingi-Ego, noted.

There have been reports that several banks have been struggling to attain the required capital buffers. 

However, the increase in capital buffers, government indicated in the letter of intent, had boosted the performance of the banking sector, which during the period ended September 2023 remained well-capitalized, while profitability increased due to a rise in the return on assets, from 2.8 percent in September 2022 to 3.1 percent in September 2023. 

Capital buffers

The increase in capital buffers has also boosted the ratio of capital to risk-weighted assets, which firmed at 24.1 percent in September 2023, while the minimum prudential requirement was above 10 percent, while the liquidity coverage ratio increased from 185 to 268 percent over the year to September 2023 boosted by increased holdings of treasury securities, as private sector lending remained low. 

All banks were above the prudential minimum liquidity coverage ratio of 100 per cent, while the aggregate non-performing loans ratio increased marginally to 5.3 per cent in September 2023, and the ratio of specific provisions- to non-performing loans increased from 44.8 to 45.6 per cent.