The current Ush3 million ($805) deposit protection ceiling was introduced in the early 1990s under the repealed Financial Institutions Statute of 1993.
But significant growth registered in customer numbers, deposits and service providers within the financial sector since 2004 have rendered it obsolete.
The new reform proposal is in the final drafting stage, with officials making final touches on the blueprint before submitting it to the Fund’s board for discussion and approval.
Uganda is planning to raise the official protection cover for cash depositors from Ush3 million ($805) to Ush10 million ($2,682) in a fundamental move that promises a huge relief to citizens holding fat account balances in times of a bank collapse.
But this could raise contribution costs for financial institutions in an industry haunted by previous bank failures.
Deposit protection cover is the maximum amount of money provided by the government for compensation of depositors who hold cash in closed banks or other “dead” financial institutions.
The current Ush3 million ($805) deposit protection ceiling was introduced in the early 1990s under the repealed Financial Institutions Statute of 1993.
But significant growth registered in customer numbers, deposits and service providers within the financial sector since 2004 and movements in macroeconomic indicators such as inflation have rendered it obsolete.
The new reform proposal is in the final drafting stage, with officials at the Deposit Protection Fund (DPF) making final touches on the blueprint before submitting it to the Fund’s board for discussion and approval.
Though previously a department of the Central Bank, the Deposit Protection Fund of Uganda was recently transformed into a separate institution headed by a chief executive responsible for managing assets meant to be utilised for compensation of depositors belonging to closed banks, credit institutions and micro deposit taking institutions (MDIs) regulated by the Bank of Uganda.As as of June 2018, there were 33 contributing financial institutions enlisted with the DPF, comprising 24 commercial banks, four credit institutions and five MDIs.The expansion of the deposit protection cover will cut losses for some big depositors affected by future bank closures.Under the existing rules a depositor with a bank balance of say Ush5 million ($1,341) would only get Ush3 million ($805) while those holding account balances below Ush3 million would be fully compensated.However, the enhanced deposit protection cover poses a bigger financial burden for local lenders, especially small players with modest balance sheets.Currently, regulated financial institutions are required to contribute 0.2 per cent […]