The Bank of Uganda (BOU), which supervises and regulates financial institutions in Uganda including the commercial banks and credit institutions has increased the minimum paid-up capital to Ugx 150billion and Ugx 25billion for commercial banks and credit institutions respectively.
According to the public notice released by the Bank of Uganda on Thursday, July 6, 2023, in his powers under the Financial Institutions Act, 2004 (as amended), the Minister of Finance Planning and Economic Development Matia Kasaija issued a Financial Institutions instrument 2022 on December 16, 2022, thereby revising the minimum capital required for a financial institution license.
Under the instrument, the commercial banks and credit institutions were required to maintain a minimum paid-up capital of Ugx 120billion and Ugx 25 billion respectively.
However, according to public notice from the Bank of Uganda, effective June 30, 2024, the minimum paid-up capital will be raised to Ugx 150billion for commercial banks and Ugx 25 billion for credit institutions.
“Under the instrument, commercial banks were required to maintain a minimum paid-up capital of UGX 120 billion, and credit institutions of UGX 20 billion by 31 December 2022.These capital thresholds will be further raised to UGX 150 billion for commercial banks and UGX 25 billion for credit institutions by June 30, 2024,” the public notice read.
According to Bank of Uganda, the higher minimum paid-up capital requirements are intended to enhance the financial systems resilience to shocks, promote financial stability and advance the capacity of the financial institution to meet the growing needs of a dynamic economy.
In the notice, the Bank of Uganda has revealed that as of June 30, 2023, most of the supervised financial institutions including those deemed large and critical to the smooth functioning of the financial system, complied with the revised capital requirements.
Adding, 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 requirement within agreed timeliness.
According to the Credit Analyst who revealed on condition of anonymity, the raise in the paid-up capital requirements for the financial institutions will boost the economy because the raise in the capital for banks avails more money for lending.
“When the bank capitalizes, its capacity to serve its customers increases. That means, if the bank could only lend Ugx 30billion, with increase in capital, it can lend beyond that,” the Credit Analyst noted.
He added that, banks may even expand by creating branches, which provides employment opportunities to the population, adding that it can lead to salary increment for workers.
However, he retaliated that the raise in the capital requirements may also raise the cost of providing service in order to compensate for the costs incurred in the process of acquiring capital.
“So when the cost of capital increases, even the cost of providing services to customers may increase slightly,” the Credit Analyst added.
Paid-up capital is the amount of money received by the company when it sells its shares to the shareholders and investors directly through the primary market.
