The closure of financial institutions in Uganda for various reasons has become a common feature over the last 15 years.
The latest is Mercantile Credit Bank Limited, which was on June 18 last year placed under liquidation, its licence revoked and an order given for the winding up of its affairs over capitalisation-related issues. The other is EFC Uganda Limited, which was closed by the Bank of Uganda in June for failing to meet minimum capital requirements.
These join others such as Greenland Bank, Teefe Bank, International Credit Bank, National Bank of Commerce, Global Trust Bank and Crane Bank, which have been closed in the last 15 years.
And with the year 2025 upon us, financial experts are offering solutions to various stakeholders in the banking sector, including depositors, to avoid more bank closures amid tough economic times.
Mr Richard Byarugaba, the former managing director of NSSF and a banker, says the banking sector in Uganda is fragmented, making it impossible for most of the banks to meet the capital requirements set by the Central Bank.
“The financial sector is facing challenges, largely due to global trends in the international market, which have a direct impact on us. The banking sector remains fragmented with numerous players,” Mr Byarugaba says.
He, therefore, calls for consolidation where smaller banks merge with bigger ones, which, he says, strengthens their resilience against systemic economic risks, regional uncertainty and business separation risks.
The minimum paid-up capital requirement for commercial banks (Tier I financial institutions) was increased from UGX 25 billion to Shs120 billion by December 31, 2023 and Shs150 billion by June 30, 2024, which, Mr Byarugaba says was necessary to consolidate the market and eliminate weaker players who can’t withstand economic turbulence.
However, speaking during a dialogue on bank closures organised by Kigo Thinkers in Kampala, Mr Phillip Katamba, a financial adviser, questions the regulator’s decision to increase the minimum capital requirement for banks without correspondingly increasing the Deposit Protection Fund (DPF) insurance, which currently stands at Shs10 million.
“Why focus on increasing capital instead of expanding Deposit Protection Fund (DPF) insurance? Do we have effective monitoring systems, are we leveraging AI to review processes? Are there safety nets in place to mitigate risks?” Mr Katamba wonders.
The experts say it is high time the government enacted a regulation that will see the DPF raised.
“So far regulators have already increased the amount of capital needed for operating a bank. They should have been more holistic to look at the entire banking sector. Why increase for commercial banks and leave out the protected deposit? Inconsistencies in the regulatory framework should be addressed to ensure such disastrous aspects can be mitigated,” Mr Katamba urges.
These closures have left many customers and other people worried about the safety of their funds and whether they should continue keeping their money in banks. Many customers of Mercantile Credit Bank Limited, who saved more than Shs10m, are yet to receive their money. DPF pays up to UGX 10 million to customers in the unlikely event that their bank fails or closes.
According to Dr Kenneth Egesa, the Director of Communications at BoU, those who have more than Shs10m after the closure of the bank are paid after selling its assets.
Mr Samuel Aliku Kwizera, the chairman of Pepsi Cola Village (Lufula) in Nakawa Industrial Area where Mercantile Bank was located, says most of the meat dealers and sellers who had more than Shs10m in the financial institution, are stuck.
“Bank of Uganda should always help citizens who are saving with institutions that are about to collapse by giving us quick updates such that we able to rescue our money because they see further than us,” Mr Kwizera says.
“BoU should help us especially the Rufura people, our businesses are at a standstill, the person who used to trade over 50 cows can’t even afford 5 cows,” he adds.
Mr Stephen Kasenge, an auditor, who says his investment club was impacted by the Mercantile Credit Bank closure, calls for a transparent reimbursement plan and clear communication in the event of bank closures.
“The central bank is recovering funds from borrowers and plans to pay depositors once sufficient reserves are available. However, communication has been poor, with reimbursements appearing in accounts without notice. We hope for clearer updates and a roadmap for accessing these funds,” he says.
To Mr Byarugaba, Ugandans should move away from short-term investments and focus on more secure options, such as mid-term & long-term investments, to safeguard their capital.
“Strategic investing is key to ensuring financial security in uncertain times. About the Deposit Protection Fund (DPF): You are only guaranteed 10 million. As an investor, you should have a good risk management system in place to decide which bank to deposit your money in,” he says.
Mr Angelo Izama, a journalist, agrees that large depositors should diversify their investments for better recovery.
“Our biggest challenge is short-termism. If we focused on medium- and long-term investments, like leases or capital assets, the economy would grow significantly. Policies should penalise short-term investments and reward those with a longer-term vision,” he argues.
Nevertheless, Mr Katamba says the government policies on the monetary sector must be dynamic to cater for the latest technological changes such as cryptocurrency and AI.
“Corporate governance must prioritize stability making bank closures a last resort and a robust approach is essential to prevent future failures and protect depositors including enhanced; Reforms should be dynamic and continuous. On average, a reform takes 10 years in Uganda and by the time it is implemented, it is obsolete,” he says.
“We should leverage technology to create a resilient system, as bank closures should be a last resort. Policies must align with macroeconomic goals and use data and AI to improve decision-making,” he adds.
Mr Oscar Semweya Musoke says transparency and accountability in the financial sector are non-negotiable.
“This isn’t just about what went wrong at the bank—it’s about what safeguards we can put in place to prevent this from happening again,” he says.
