Banking in Uganda

Prior to Uganda's independence in 1962, government-owned institutions dominated most banking in Uganda. In 1966 the Bank of Uganda (BoU), which controlled the issue of currency and managed foreign exchange reserves, became the central bank and national banking regulator. Uganda Commercial Bank, which had fifty branches throughout the country, dominated commercial banking and was wholly owned by the government. The Uganda Development Bank was a state-owned development finance institution, which channeled loans from international sources into Ugandan enterprises and administered most of the development loans made to Uganda.

The East African Development Bank (EADB), established in 1967 was jointly owned by Uganda, Kenya, and Tanzania. It was also concerned with development finance. It survived the breakup of the East African Community in 1977 and received a new charter in 1980.

In the 1960s, other commercial banks included local operations of Bank of Baroda, Barclays Bank, Bank of India, Grindlays Bank, Standard Chartered Bank and Uganda Cooperative Bank.

During the 1970s and early 1980s, the number of commercial bank branches and services contracted significantly. Whereas Uganda had 290 commercial bank branches in 1970, by 1987 there were only 84, of which 58 branches were operated by government-owned banks. This number began to increase slowly the following year, and in 1989 the gradual increase in banking activity signaled growing confidence in Uganda's economic recovery.[1]

1990s–2004

In the late 1990s and early 2000s, the Ugandan banking industry underwent significant restructuring. Several indigenous commercial banks were declared insolvent, taken over by the central bank, and eventually sold or liquidated. These included the Uganda Cooperative Bank, Greenland Bank, the International Credit Bank, Teefe Bank, and Gold Trust Bank. The Uganda Commercial Bank (UCB) was initially privatized through a sale of its majority shares to a purported company from Malaysia. It later came to light however, that the actual buyer was a partnership between Greenland Bank, which was insolvent at the time, and some politically connected individuals. A second privatization sale was conducted, with the Standard Bank of South Africa emerging as the winner.

The privatized UCB was merged with the former Grindlays Bank that the Standard Bank of South Africa already owned and had renamed Stanbic Bank. The combined new bank is now known as Stanbic Bank Uganda Limited. As of 2008, Stanbic Uganda was the dominant commercial bank in Uganda, with about 27 percent of all bank assets and about 20 percent of all bank branches.[2] Nile Bank Limited, an indigenous institution, was acquired by the British conglomerate Barclays Plc in January 2007 and merged with its existing Ugandan operations to form the Barclays Bank (Uganda).

A moratorium on new commercial bank licences was declared in 2004 with the passage of a new banking bill in Parliament, which established new banking institution classification guidelines. There are four classes of lending financial institutions under the new regulations as outlined below.

Regulatory changes 2007 - 2010

During the 18 months following the July 2007 lifting of the new banks moratorium, seven commercial banks were newly licensed. These included Kenya Commercial Bank, Equity Bank (from Uganda), Fina Bank (from Kenya), Global Trust Bank (from Nigeria), United Bank for Africa (from Nigeria), Ecobank (from Togo), and Housing Finance Bank (from Uganda). Three other banks, ABC Bank (Kenya), Access Bank from Nigeria, and CRDB Bank from Tanzania, have publicly declared their intention to start banking operations in Uganda.[3]

During 2008 and 2009, several of the existing banks went on an accelerated branch expansion either through mergers and acquisitions or through new branch openings. As of December 2009, total commercial bank assets in Uganda were estimated at UGX:8.73 trillion. Rwanda joined the EADB in July 2008. In April 2009, Bank PHB, Nigeria's fifth largest bank, bought 80 percent ownership of Orient Bank, Uganda's eighth largest commercial bank. This brought the number of Ugandan banks with major investments from Nigeria to three.[4]

In October 2010, there were 22 licensed commercial banks in Uganda, with nearly 400 bank branches and almost 600 automated teller machines. At that time, the bank accounts in the country numbered over 5 million. This represented a 16 percent penetration, given Uganda's population of 32,000,000, at that time.

In November 2010, the BoU directed that all commercial banks in Uganda must raise their minimum capital to UGX:10 billion by March 2011[5] and to UGX:25 billion by March 2013.[6]

However most of the banking activity is concentrated around Kampala, the country's capital and other large towns, leaving 42 percent of Ugandans at the mercy of the informal financial sector and another 30 percent totally excluded from the financial services sector, according to a study in 2010.[7]

After 2010

By April 2011, the number of commercial banks had increased to 23. The bank branches in the country numbered over 400. The banking sector employed over 8,700 people. Total commercial bank assets in the country were valued at more than UGX:11 trillion.[8]

During 2012, the BoU closed the National Bank of Commerce (Uganda) (NBCU), a small indigenous operation with wealthy investors, some of whom held high-ranking government positions. The deposits of the liquidated NBCU were transferred to Crane Bank.[9] In November 2012, the total number of commercial bank branches in the country reached 500.[10]

In April 2013, Burundi applied to join the EADB.[11]

In June 2012, the BoU estimated the total banking assets in the country at UGX:14.4 trillion.[12] In June 2013, the BoU estimated the total of all commercial bank assets in the country at UGX:15.7 trillion.[13] Those assets had increased to UGX:18.6 trillion by 30 June 2014.[14]

Classification of financial institutions

Tier I financial Institutions

This class includes commercial banks which are authorized to hold checking, savings, and time deposit accounts for individuals and institutions in local and international currencies. Commercial banks are also authorized to buy and sell foreign exchange, issue letters of credit and make loans to depositors and non-depositors.

Tier II financial institutions

This class includes credit and finance companies. They are not authorized to establish checking accounts or trade in foreign currency. They are authorized to take in customer deposits and to establish savings accounts. They are also authorized to make collateralized and non-collateralized loans to savings and non-savings customers.

The licensed credit institutions as of June 2015 were:[15]

  1. Mercantile Credit Bank Ltd. - A wholly owned subsidiary of General Machinery Limited.
  2. Opportunity Bank Uganda Limited - A wholly owned subsidiary of Opportunity International.
  3. PostBank Uganda Limited - Wholly owned by the Ugandan government.
  4. Top Finance Bank Uganda Limited

Tier III financial institutions

This class includes microfinance institutions that are allowed to take in deposits from customers but only in the form of savings accounts. Members of this class of institutions are known as Microfinance Deposit-taking Institutions or MDIs. MDIs are not authorized to offer checking accounts or to trade in foreign currency.

The MDIs in the country as of 30 June 2015 were:[16]

  1. FINCA Uganda Limited
  2. Pride Microfinance Limited
  3. UGAFODE Microfinance Limited
  4. EFC Uganda Limited

Tier IV institutions

These institutions are not regulated by the BoU. They are not authorized to take in deposits from the public. However, they may offer collateralized or non-collateralized loans to the public. In 2008, it is estimated that there are over 1,000 such institutions in the country.

Development banks

Investment banks and stock brokerage firms

This is a list of investment banks and stock brokerage firms in Uganda[17] They are regulated by the Capital Markets Authority (CMA) and by the Uganda Securities Exchange.[18]

  1. African Alliance Investment Bank
  2. Baroda Capital Markets Uganda Limited
  3. Crane Financial Services Uganda Limited
  4. Crested Stocks and Securities Limited
  5. Dyer & Blair Investment Bank [19]
  6. Equity Stock Brokers Uganda Limited
  7. UAP Financial Services Limited
  8. Stanbic Financial Services Limited

Insurance companies

There were 25 insurance companies in Uganda, as of March 2010.

Foreign exchange bureaus

Other regulated financial institutions include 123 licensed foreign exchange bureaus, of which 92 percent are located in Kampala, the capital city, and the remaining 8 percent are located elsewhere.

Deposit insurance

The Deposit Protection Fund became operational in 1997. It is funded by premiums charged to every licensed deposit-taking financial institution in the country. Each account is protected up to UGX:5 million.[20]

The Depositor Insurance Law was enacted by Parliament and states that all depositors must be paid within 90 days of a bank failure and the failing institution must be sold by the auctioning of its assets within six months of its seizure by the central bank. If the central bank determines that the failed institution will fetch a better economic return, if sold as a whole, then it will re-open under new ownership and management, provided the new owners and managers meet the approval of the BoU.

Credit bureaux

In 2008, a credit reference bureau was established for the first time in Uganda. The bureau, Compuscan, is based in South Africa and has subsidiaries in Botswana, Namibia, Rwanda, and Uganda, with new ones planned in Kenya and Zambia.[21]

With improved credit risk assessment afforded by the credit bureau, new products, including medium and long-term financing like car loans and mortgages, have been introduced by most Ugandan commercial banks. As of April 2014, interest rates that were formerly in the 20 to 30 percent range had dropped to as low as 10 percent for the best customers at some banks.[22]

In 2015, Ugandan regulators licensed an additional credit bureau, Metropol Credit Reference Bureau Limited. Based out of Nairobi, Kenya, Metropol has operations in Kenya, Rwanda, Tanzania, and Uganda.[23][24]

See also

References

  1. ↑ "Library of Congress Country Studies: Uganda Banking". Library of Congress Online Catalog. Retrieved 20 April 2014.
  2. ↑ "About Stanbic Bank Uganda Limited". Stanbic Bank Uganda Limited. Retrieved 20 April 2014.
  3. ↑ "Kenyan Banks Assert Presence in Uganda". African Executive. Archived from the original on December 19, 2013. Retrieved 20 April 2014.
  4. ↑ "Nigeria's Bank BHP acquires controlling stake in Orient Bank". TradeInvestAfrica. 12 May 2009. Archived from the original on April 21, 2014. Retrieved 20 May 2014.
  5. ↑ Wafula, Walter (3 June 2011). "Banks raise minimum capital to UGX:10 billion". Daily Monitor. Retrieved 19 April 2016.
  6. ↑ Mugerwa, Yasiin (23 March 2011). "Government tightens grip on banks". Daily Monitor. Retrieved 19 April 2016.
  7. ↑ Were, Nathan (14 June 2011). "Uganda: Banks Should Rethink Expansion Strategies". Daily Monitor. Retrieved 20 April 2014 – via AllAfrica.com.
  8. ↑ Nannozi, Tereza (7 April 2011). "Banks Rolling In Profits". The Independent (Uganda). Archived from the original on April 22, 2014. Retrieved 20 April 2014.
  9. ↑ Rupiny, David (28 September 2012). "BoU: National Bank of Commerce Was In Financial Mess". Uganda Radio Network Online. Retrieved 19 April 2016.
  10. ↑ Sanya (1 November 2012). "Bank of Baroda Goes to Industrial Area". New Vision. Retrieved 19 April 2016.
  11. ↑ "BURUNDI APPLIES TO JOIN EADB", East African Development Bank, 4 April 2013, accessed 19 April 2016
  12. ↑ "Uganda Financial Stability Report June 2012" (PDF). Bank of Uganda. p. 9. Retrieved 19 April 2016.
  13. ↑ "Uganda Financial Stability Report June 2013" (PDF). Bank of Uganda. p. 11. Retrieved 19 April 2016.
  14. ↑ BOU (30 June 2014). "Bank of Uganda Financial Stability Report, June 2014: Issue Number 6" (PDF). Bank of Uganda (BOU). p. 7. Retrieved 19 April 2016.
  15. ↑ "Updated List of Licensed Credit Institutions As At 30-June-2015" (PDF). Bank of Uganda. Retrieved 19 April 2016.
  16. ↑ "Microfinance Deposit-Taking Institutions (MDIs)". Bank of Uganda. Retrieved 19 April 2016.
  17. ↑ "List of Licensed Investment Banks & Stock Brokerage Firms in Uganda". Uganda Securities Exchange. Retrieved 21 April 2014.
  18. ↑ Mugwe, David (10 November 2011). "Ugandan Stockbroker Transfers Kenyans' Share Accounts". Business Daily Africa (Nairobi).
  19. ↑ "Partial Listing of Stock Brokerage Firms In Uganda". New Vision Group. Retrieved 21 April 2014.
  20. ↑ Musa Ladu, Ismail (19 August 2014). "Why Your Bank Could Be Closed By The Regulator". Daily Monitor (Kampala). Retrieved 19 April 2016.
  21. ↑ Odyek, John (19 December 2013). "Compuscan Improves Uganda's Loan System". New Vision. Retrieved 21 April 2014.
  22. ↑ Lyatuu, Justus (1 February 2010). "Post Bank Unveils New Agricultural Loans Project". Daily Monitor. Retrieved 21 April 2014.
  23. ↑ Ngigi, George (16 March 2015). "Kenya’s Metropol Gets Uganda Credit Referencing Licence". Business Daily Africa. Nairobi. Retrieved 17 March 2015.
  24. ↑ Herblin, David (27 November 2015). "Kenyan credit bureau Metropol gets licence to start Uganda operations". The EastAfrican. Nairobi. Retrieved 27 November 2015.

External links

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