Proposal is good for the industry but a headache to investors, small players
| THE INDEPENDENT | The central bank’s proposal to raise capital requirements for commercial banks is commendable but could threaten survival of small players, according to industry players and experts.
Wilbrod Owor, the executive director at the Uganda Bankers Association told The Independent in an interview that it is because of the likely risks to the industry that they have consultations.
He said, there are already suggestions to the Bank of Uganda on how to move on including; giving timelines for banks to raise the required capital by staggering it in years; creating tiers for banks basing on their capital base and other indicators like cash and retained earnings.
Stephen Kaboyo, the ex-Bank of Uganda executive and now the managing director at Alpha Capital Partners, a financial advisory firm, said he supports the new move but predicts danger for small players.
He told a local daily newspaper that it is likely that the proposed capital levels will put pressure on small banks to merge or exit the market as regulation is always costlier to small players than the big ones.
The Bank of Uganda circular dated Aug.20, directed to all chief executives of commercial banks, credit institutions and micro deposit taking institutions, said the central bank proposes to raise paid up capital requirement of commercial banks from the current Shs25bn to Shs150bn, credit institutions from Shs1bn to Shs25bn and MDIs from Shs500milion to Shs10bn.
The capital requirement for commercial banks, credit institutions and MDIs were last revised in 2010, 2004 and 2003 respectively.
The circular stated that the increase in paid up capital is long overdue and is intended to match the dynamism in the economy, incentivize shareholder commitment, and enable institutions to withstand shocks and to converge with regional peers among whom Uganda effectively has the lowest paid-up capital.
However, 15 of the country’s 25 commercial banks have capital that fall far below the proposed new capital requirements, according to their financial statements for the year ended December 2020.
For instance, Bank of Africa had its capital standing at Shs95bn, Orient bank Shs25bn, Ecobank Shs36bn, KCB Shs67bn, UBA Bank Shs66bn, Bank of India Shs43bn, Finance Trust Shs46bn, Tropical Bank Shs29bn, Cairo Shs41bn, ABC Capital Shs28bn among others.Those operating above the proposed new threshold are, Stanbic Bank with capital worth Shs917bn, Centenary Bank Shs684bn, Stanchart Shs570bn, Absa Shs435bn, dfcu Shs482bn, Baroda Shs409bn, Diamond Trust […]