Finance Trust Bank, one of the 25 regulated commercial banks in Uganda is due for a takeover after Nigerian-based Access Bank PLC agreed to acquire 80 percent of the shares. Completion of the transaction now awaits regulatory approvals by the Bank of Uganda.
It comes at a time when the regulated financial institutions are raising their minimum capital levels to comply with the requirements of the Bank of Uganda aimed at strengthening the industry.
In December 2022, the Minister of Finance, Planning, and Economic Development issued the Financial Institutions (Revision of Minimum Capital Requirements) Instrument, 2022, raising the minimum paid-up capital for commercial banks to 120 billion Shillings by December 2022.
They would then increase this to 150 billion Shillings by June 2024. Credit Institutions were also directed to raise the minimum to 20 billion Shillings and 25 billion by June 2024. “The higher minimum paid-up capital requirements are intended to enhance the financial system resilience to shocks, promote financial stability, and advance the capacity of the financial institutions the meet the growing needs of a dynamic economy,” said the Bank of Uganda.
Microfinance institutions were also to increase their capital to 10 billion shillings, while Parliament advised that this be set at 5 billion shillings to ensure that the financial deepening and access to financing for the majority of poor Ugandans is supported. Experts have since argued that the requirements are too stiff for many players in the industry and could see closure of businesses, or be acquired by the bigger players or new foreign investors.
In July 2023, the Bank of Uganda issued a public statement saying that a majority of the financial institutions, including those deemed large and critical to the smooth functioning of the financial system, complied with the revised capital requirements. “The remaining financial institutions had put in place credible capital restoration plans whose implementation was significantly advanced, and on course to achieve complete compliance with the revised capital requirements within agreed timelines.”
BOU did not give numbers, but sources said at least five institutions were underperforming according to the new requirements. The announcement of the buy into FTB came almost at the same time that a microfinance institution, EFC (formerly Entrepreneurs Financial Centre) Uganda was being shut down by the Bank of Uganda. The main reason given by the regulator was undercapitalisation.
“This action has been taken because Bank of Uganda has determined that the continuation of EFC Uganda Limited’s activities is detrimental to the interests of its depositors due to the institution’s failure to resolve its significant undercapitalization and poor corporate governance,” said BOU Deputy Governor, Michael Atingi-Ego.
In September 2023, Top Finance Bank another relatively smaller and newer bank was acquired by Djiboutian group, Salaam African Bank, and this followed the takeover of Orient Bank by I&M of Kenya. Finance Trust which was founded in 1984 as Uganda Women’s Finance Trust Limited mainly to provide financial services to low-income people in Uganda, especially women, became a fully-fledged commercial bank in 2013.
Sixty percent of the bank’s customers are women, who also account for 40 percent of the loan portfolio. Being a relatively smaller bank, it had about 500,000 depositors and 29,000 at the end of 2021, with 34 branches countrywide. The bank’s total customer deposits amounted to 183.4 billion Shillings out of the total 45 trillion for the industry, while total assets were worth about 93.9 billion with shareholders’ equity of 61.2 billion shillings.
A group of women entrepreneurs in Uganda, Uganda Women’s Trust owned 20.10 percent of FTB while other institutional shareholders included Oikocredit Ecumenical Development Cooperative Society (Netherlands) with 19.6 percent. Progression Eastern African Micro Finance Equity Fund of Mauritius owned 18.3 percent, RIF North 1 of Mauritius, 18.3 percent, and Investment & Partner Afrique Entrepreneurs (Mauritius) had 14.2 percent.
Ugandan Women Entrepreneurs owned about 9.5. The statement by Access Bank says the shares being acquired are owned by institutional investors. According to the annual performance report for the year by the Bank of Uganda, total banks’ assets grew from 44.6 trillion as of the end of June 2022 to 48.3 trillion shillings by the end of June 2023.
“Concerns about slowing economic growth induced greater caution in banks towards extending loans to the private sector. This resulted in an increase of just 4.4 percent in loans and advances, far slower than the 12.2 percent growth registered the previous year,” says the report.
Commercial banks’ gross loans and advances grew from 18.6 trillion Shillings to 19.4 trillion Shillings by the end of the year. Experts foresee that more mergers and acquisitions are expected in the future as more banks will struggle.
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