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GTBank Downgraded from Tier1 Commercial Bank to Tier II Credit Union

GTBank, ABC Capital Bank, Opportunity Bank Downgrades to Credit Union

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Mucrunch
March 27, 2024

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The Bank of Uganda (BoU) has downgraded Guaranty Trust Bank (GTBank), Kenya's ABC Capital Bank, and Opportunity Bank from Tier I commercial banks to Tier II credit institutions. This decision follows applications from the banks themselves, anticipating their inability to fulfill the country's new capital buffer requirements.

Downgrade Implications

  • The downgraded banks can no longer offer current accounts or conduct foreign exchange transactions.

  • Their permitted activities are limited to accepting customer deposits and managing savings accounts.

Reason for Downgrade

The Ugandan government significantly increased the minimum capital buffer requirement for commercial banks in 2023, from $6.4 million to $38.6 million. Fearing non-compliance by the deadline of June 30, 2024, the three banks opted for downgrading.

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Transition Period and Regulatory Landscape

  • A three-month grace period, from April 1 to June 30, 2024, is granted to allow the downgraded banks to phase out products and services incompatible with their new Tier II status.

  • The BoU confirms that all three banks meet the capital adequacy requirements for Tier II licenses (minimum of $6.4 million).

  • The new regulations also impact microfinance institutions (MFIs), which now require a minimum capital of $2.5 million and foreign exchange bureaus.

  • An estimated seven banks remain non-compliant with the new capital buffer requirements.

Looking Ahead

This development highlights Uganda's stricter approach to financial regulations. The new capital buffer requirements aim to strengthen the banking sector and ensure its stability. While some banks have opted for downgrading to comply, others may need to find alternative solutions to meet the Tier I capital threshold by the deadline.

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