Three commercial banks in Uganda are making changes. They will move from Tier I commercial banks to Tier II credit institutions, according to a statement from the Bank of Uganda on Wednesday.
The three banks are ABC Capital Bank, Guaranty Trust Bank, and Opportunity Bank. They now have three months to make this change. During this time, they will phase out products and processes that require a Tier I license.
The Deputy Governor of the Bank of Uganda, Michael Atingi-Ego, explained that this transition period aims to ensure a smooth transition for customers. It also aims to prevent any problems in the stability of the financial sector.
The decision for these banks to become credit institutions comes from their boards of directors. They want to make strategic changes and reposition the banks.
The Bank of Uganda stated that these institutions have enough money and meet the minimum requirements for a Tier II license.
The change comes after the minimum paid-up share capital requirement for Tier I Commercial Banks was raised. By the end of 2022, it was raised to UGX 120 billion (approximately USD 32.26 million). By June 30th, 2024, it will be UGX 150 Billion (approximately USD 40.32 million). These three banks couldn’t raise that much money.
A financial analyst explained that by downgrading, the banks are avoiding closure. They will get some money back from the Bank of Uganda. There will be less regulation, and they will function more like money lenders.
In June 2023, Guaranty Trust Bank Uganda announced its intention to transition to a Tier II credit institution. This decision came because the bank only had UGX 41 billion (approximately USD 11.02 million) in paid-up share capital, which is much less than what’s required.
The Managing Director of Guaranty Trust Bank Kenya, Jubril Adeniji, said that operating as a Tier II Credit Institution aligns with the bank’s strengths in Retail and SME Banking.
ABC Capital Bank began as a Micro Finance Institution in 1993. It became a commercial bank in 2010 after ABC Bank (Kenya) acquired a majority share.
Opportunity Bank, formerly Faulu Uganda, started as an NGO program in the mid-1990s. It became a Tier 2 credit institution and then received its commercial banking license in 2019. It is mostly owned by the Luxembourg-based fintech MyBucks Group.
