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We closed EFC, Mercantile after identifying serious risks, says BoU
Bank of Uganda closed EFC Uganda in January over capitalisation-related issues. Photo / File
What you need to know:
- Bank of Uganda has in a space of six months closed two financial institutions classified as credit or tier II institutions over capitalisation-related issues
Bank of Uganda has said the move to close Mercantile Credit Bank last week and EFC Uganda in January came after it identified “serious issues that put customer savings at risk”.
While responding to inquiries about the closure of the two banks last Friday, Dr Kenneth Egesa, the Bank of Uganda director for communications, said: “Unfortunately, in the case of EFC and Mercantile, which ... we have closed, we identified serious issues that put customer savings at risk,” noting that the two banks were undercapitalised and had failed to put in place strong leadership and risk management measures.
He added that while the Central Bank “understands that the news about the closure of Mercantile is frustrating and concerning to the public, especially depositors, creditors and employees,” the bank had faced some challenges that made it difficult to continue operating.
Financial institutions such as Mercantile, which are classified as credit institutions are required to have increased their paid-up capital to Shs25b by the end of this month from Shs1b, in a revision announced by Finance Minister Matia Kasaija in December 2022.
The revision also increased paid-up capital for tier-one financial institutions or commercial banks from Shs25b to Shs150b. All commercial banks are expected to have fully met the new capital requirements by the end of this month.
However, the increase has presented challenges, leading to the closure of some financial institutions, while others have downgraded their operations.
Opportunity Bank, Guaranty Trust Bank and ABC Capital early this year voluntarily applied to downgrade their licences from commercial banks to credit institutions.
Details also indicated that many financial institutions have had to take huge loans or capital boosts from parent companies to meet the new requirement.
