The Bank of Uganda has granted approval to Guaranty Trust Bank (GTBank) to downgrade its operations from a Tier I commercial bank to a Tier II credit institution. The action comes after the bank, a subsidiary of Guaranty Trust Holding Company (GTCO) Plc, anticipated its inability to meet the new capital buffer requirements imposed on commercial banks.
In addition to GTBank, ABC Capital Bank and Opportunity Bank also submitted applications for a downgrade.
Deputy Governor of the Bank of Uganda, Michael Atingi-Ego, signed a notice detailing that these three banks will have a three-month transitional period, beginning on April 1, 2024, and concluding on June 30, 2024.
He stated, “This is intended to ensure a smooth service transition for their customers and to mitigate any disruption to financial sector stability.”
During this transition, the Bank of Uganda expects that these three banks will carry out necessary adjustments to phase out products and procedures that necessitate a Tier I Licence.
In 2023, Uganda’s finance ministry implemented regulations requiring commercial banks operating in the country to maintain a minimum capital buffer of $38.6 million. This was a significant increase from the previous requirement of $6.4 million.
Faced with concerns over meeting the June 30, 2024 deadline, the three financial institutions sought to downgrade their status. The Bank of Uganda revealed in a statement on Wednesday, March 27, 2024, that the change in status for these three commercial banks to credit institutions came after their respective boards of directors opted for a strategic shift. This decision was made in a bid to reposition these institutions to better serve their core customer base.
The top regulatory bank announced that GTBank, ABC Capital Bank, and Opportunity Bank satisfy the capital requisites for operating a Tier II Licence. Under the new regulations, this permits a minimum capital requirement of $6.4 million, up from the previous $275,802.
Upon completion of the downgrade, the three banks will be limited to accepting customer deposits and managing savings accounts. They will no longer be permitted to engage in foreign currency trading or open current accounts for their customers.
Currently, seven other banks are still working towards meeting the new capital requirements.
The new directives regarding minimum capital requirements also impact other financial entities such as foreign exchange bureaus and microfinance deposit-taking institutions. These institutions are now required to have a minimum capital of $2.5 million.
