By KABONA ESIARA

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The stringent guidelines set by Uganda’s Finance Ministry for commercial banks in a bid to cushion against shocks in the financial sector have forced some commercial banks to downgrade and become tier-2 financial institutions.

Opportunity Bank and Guaranty Trust Bank, for instance have been struggling to raise the minimum paid-up capital of Ush120 billion ($30.45 million), as set by the Finance ministry, fanning fears that they could lose the trading licence, should they fail to capitalise by June 30.

According to the Bank of Uganda (BoU), the higher capital requirement in the banking sector is intended to enhance the financial system’s resilience to shocks, promote financial stability, and advance the capacity of the financial institution to meet the growing needs of the economy.

During the recent Third Bank of Uganda Financial Stability Symposium, Twinemanzi Tumubweine, executive director in charge of bank supervision at the central bank, said the banking sector has witnessed several acquisitions and others are in progress, adding that “the market forces will determine which banks are more efficient.”

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Owen Amanya, CEO of Opportunity Bank Uganda Ltd, told The EastAfrican that the bank will not raise the required paid-up capital.

According to published financial reports, by December 31, 2022, Opportunity Bank (Obul) had Ush31.5 billion ($8 million) as total qualifying capital, which is far below Ush120 billion banks minimum balance they are supposed to maintain.

But chances of the bank raising capital from the shareholders dimmed when one of the major shareholders MyBucks, owned by Johannesburg Stock Exchange-listed Afristrat, was placed in bankruptcy by the Luxembourg tax authority, l’Etat du Grand-Duché de Luxembourg in 2022. The Luxembourg-based court upheld the bankruptcy application.

Banking sector information also indicates that Guaranty Trust Bank Uganda is yet to raise its capital. In the twelve months to December 31, 2022, the bank reported paid up capital of Ush1.954 billion ($495,000) and capital funds of Ush52.112 billion ($13.2 million), which is below the minimum capital requirement of Ush120 billion.

Stephen Kaboyo, managing director of Alpha Capital Uganda Ltd, said smaller banks have failed to measure up to the new capital buffers and are giving in to the “big boys.”

While Uganda has 26 licensed commercial banks, data shows the market is skewed in favour of 10 lender that control 82.18 percent of the total industry assets.

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The Uganda banking market has also witnessed a wave of takeovers, the latest being Finance Trust Bank (FTB) whose shareholders exited the Uganda market.

The women-dominated lender early this year sold 80 percent of the shares to Nigeria’s Access Bank. FTB had failed to comply with the new capital requirement.

Top Finance Bank Uganda was taken over by Salaam African Bank (SAB), a financial firm based in Djibouti. SAB has since introduced Islamic banking products into the Ugandan market.