GTBank and 2 others are set to transition to credit institutions in Uganda by the month of June. The Bank of Uganda has given its approval to Guaranty Trust Bank (GTBank) for its request to transition from being a Tier I commercial bank to a Tier II credit institution.
Gtbank to Transition to Credit Institutions In Uganda
The subsidiary bank of Guaranty Trust Holding Company (GTCO) Plc, GTBank, has applied to transition from a Tier I commercial bank to a Tier II credit institution due to concerns about meeting new capital buffer requirements. Alongside GTBank, two other commercial banks, ABC Capital Bank and Opportunity Bank, have also submitted similar applications.
The Deputy Governor of the Bank of Uganda, Michael Atingi-Ego, signed a notice granting a three-month transition period for these banks, effective from April 1, 2024, to June 30, 2024. This transition period aims to facilitate a smooth shift for customers and minimize any potential disruptions to the stability of the financial sector.
What to Expect During This Transition Period
During this transition period, the Bank of Uganda expects the three banks to make necessary arrangements to phase out products and procedures associated with a Tier I Licence.
In 2023, Uganda’s finance ministry introduced regulations mandating commercial banks to maintain a minimum capital buffer of $38.6 million, up from the previous requirement of $6.4 million. Concerns about meeting this new requirement by the June 30, 2024, deadline led GTBank and the other two banks to request a downgrade.
The Decision to Transition to Tier II Credit Institutions
The decision to transition to Tier II credit institutions reflects a proactive approach to regulatory compliance and financial stability within the Ugandan banking sector.
“The change of the status of the three commercial banks to credit institutions follows decisions by the respective boards of directors to adopt a strategic shift and reposition these institutions to serve their core customer base,” BoU in a statement on Wednesday, March 27, 2024, disclosed.
The Banks Meet the Capital Requirements for Operating Under a Tier II License
The apex bank confirmed that GTBank, ABC Capital Bank, and Opportunity Bank meet the capital requirements for operating under a Tier II License. This allows for a minimum capital requirement of $6.4 million, significantly lower than the previous requirement of $275,802 under the new regulations.
However, following the downgrade, these three banks will have limited operations. They will only be able to accept customer deposits and hold savings accounts. They will not be permitted to trade foreign currency or open current accounts for customers.
Banks That Are Yet To Meet the New Capital Requirements
Currently, seven other banks have yet to meet the new capital requirements, signaling potential challenges in their operations under the revised regulations.
Additionally, other financial institutions affected by the new minimum capital requirement directives include foreign exchange bureaus and microfinance deposit-taking institutions, which are now required to have a minimum capital of $2.5 million. This move aims to strengthen the financial sector and ensure stability within the industry.
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