Following the recent receivership of Crane Bank, i feel the need to address concerns that may affect the Ugandan banking sector. The damage and crisis Crane Bank Limited has faced will not fade away. The issue to be addressed lies with capitalisation of banks in Uganda. The minimum capital requirement for setting up commercial banks needs to be raised from UGX 25 billion to either 50 or 100 billion Uganda shillings. You can’t have banks that offers loans over 50 to 100 billion shillings being required to deposit a mere 25 billion to set shop.
Minimum Capital Requirements for Financial Institutions Supervised by Bank of Uganda
The Minimum Capital Requirements for the various Tiers of Financial Institutions supervised by Bank of Uganda as below:
Tier 1 – Commercial Banks
The Financial Institutions (Revision of Minimum Capital Requirements) Instrument No. 43 of 2010 in accordance with section 26(5) of the Financial Institutions Act 2004, revised the Minimum Capital requirements of Banks to One million, two hundred and fifty thousand currency points (25,000,000,000/=)
Tier 2- Credit Institutions
The Minimum Capital requirement for Tier2 Institutions is 50,000 currency points (1,000,000,000/=) as per section 26(3) of the Financial Institutions Act 2004.
Tier 3- Micro Finance Deposit Taking Institutions (MDI’s)
The minimum capital requirements for Tier3 institutions is 25,000 currency points (500,000,000/=) as per Section 15(1) of the Micro Finance Deposit Taking Institutions Act 2003 and Regulation 6 of the Micro Finance Deposit Taking Institutions (Capital Adequacy) Regulations 2004.
NB. One Currency point = 20,000/=
Please note that, apart from The Financial Institutions (Revision of Minimum Capital Requirements) Instrument No. 43 of 2010 that revised Bank’s minimum capital requirement to 25 Billion, all the other Acts and Statutory Instruments are already on the BoU website (home page under legislations).
As i went through these requirements for setting up financial institutions in Uganda, feel to voice my concern for a revision of The Financial Institutions Instrument No. 43 of 2010 to mitigate future problems that may arise from banks becoming undercapitalised. Dear Bal of Uganda (BOU), do something about it.