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Industry shock as BoU revokes Mercantile Credit Bank licence

This is not the first time that BoU is closing a bank in the country over poor governance and undercapitalisation.

KAMPALA, June 18, 2024 – The Bank of Uganda [BoU] has with immediate effect revoked the licence of Mercantile Credit Bank Limited and ordered the lender to wind up its affairs, sending shock waves in the local banking industry.

Mercantile is a Tier II financial institution. Credit institutions are described as “non-bank” financial institutions that engage in the acceptance of call and time deposits, repayable after a fixed period or after notice.

BoU Deputy Governor, Michael Atingi-Ego in a public notice says the action taken under Sections 99 and 17[b] and [f] of the Financial Institutions Act 2004, was informed by poor corporate governance and failure to meet the required capitalisation levels. This was putting customer deposits at risk, according to Dr Atingi-Ego.

“This action is necessary because the Bank of Uganda has determined that the continuation of Mercantile Credit Bank Ltd’s activities is detrimental to the interests of its depositors due to the institution’s failure to resolve its significant undercapitalisation, poor corporate governance, and insolvency,” he said.

In the interests of the customers, BoU says it will, together with the Deposit Protection Fund [DPF], shortly inform all depositors of the arrangements to pay them back. According to the Act, the DPF insures deposits up to 100,000 shillings which it is expected to handle while the BoU will handle those higher amounts.

The uninsured portion of the deposits will be handled under Section 105 of the Financial Institutions Act 2004, as Amended, according to Atingi-Ego. All creditors are asked to submit their claims to the office of the Director, of Financial Stability at BoU within 30 days from today, Tuesday, while borrowers are directed to pay their loan balances at BoU headquarters or branches.
It should be remembered that the Finance Minister Matia Kasaija in exercise of his powers under the Financial Institutions Act, 2004 [as amended], issued the Financial Institutions [Revision of Minimum Capital Requirements] Instrument, 2022, on December 16, 2022, thereby revising the minimum capital required for a financial institution licence operating in Uganda.

And BoU in January 2024, said the implementation of the revised minimum paid-up capital requirements by commercial banks and credit institutions was progressing well, as set by the Finance ministry.

Under the instrument, commercial banks were required to maintain a minimum paid-up capital of Shs 120 billion, and credit institutions of Shs 20bln by 31 December 31, 2022.

However, the capital thresholds above were to be raised further to Shs 150bln for commercial banks and Shs 25bln for credit institutions by June 30, 2024.

“The higher minimum paid-up capital requirements are 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 a dynamic economy,” said BoU in a recent public notice.

This is not the first time that BoU is closing a bank in the country over poor governance and undercapitalisation. Teefe Trust Bank, International Credit Bank, Cooperative Bank, Greenland Bank, Global Trust Bank Uganda, National Bank of Commerce, and Crane Bank Limited were closed at different intervals for not meeting requirements of the operating licence.

However, the closure of some of the banks was mishandled by BoU, leading to the parliamentary inquiry into the closure of the banks that unearthed weaknesses on the side of BoU as it closed the banks. Some of the shareholders of the closed banks have dragged BoU to court, claiming their companies were unfairly closed, and therefore, want compensation.


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