BoU Raises Minimum Bank Capital Requirement

The Governor Bank of Uganda Prof. Emmanuel Tumusiime Mutebile (R)
and Executive Director for Research Dr. Adam Mugume (L) addressing
journalists recently

Bank of Uganda is introducing measures including raising the minimum bank capital requirement to ensure stability of the banking system, viagra Chimp Corps report.

The last 12 months have been difficult for the banking industry with a rise in non-performing loans, visit this site low asset growth and a sharp deterioration in asset quality and a decline in returns on equity.

Governor Emmanuel Tumusiime-Mutebile said action is being taken to strengthen capital buffers which banks hold to ensure the stability of the banking system.

Header advertisement

“In line with the Basel III reforms and the agreements reached between the central banks of the East African Community, we are raising the minimum statutory capital adequacy ratios at the end of December 2016, to lock in most of the higher capital that banks currently hold,” said Mutebile during the Annual Dinner of the Uganda Institute of Banking and Financial Services at Kampala Serena Hotel this past Friday.

He said the minimum core capital requirement will be raised to 10 percent of risk weighted assets and banks will also be required to hold a capital conservation buffer of 2.5 percent of their risk weighted assets.

“Average capital adequacy ratios exceed the statutory minimums, by 11.8 and 10.5 percentage points respectively for core and total capital,” he added.

Risk-weighted assets are used to determine the minimum amount of capital that must be held by banks and other institutions to reduce the risk of insolvency.

Over the year to September 2016, the commercial banks had to make provisions of Shs 345 billion for NPLs, which is double the amount set aside in the previous 12 months.

These provisions squeezed profits, with average after tax returns on equity falling to 14.9 percent in the 12 months to September 2016 compared to 17.1 percent in the previous 12 months.

Mutebile said the domestically systemically important banks will also be subject to a capital surcharge.

“Most of the banks in Uganda already hold sufficient capital to meet the new capital requirements, so they will not have to mobilise additional capital. However, the new capital requirements raise the floor on the amount of capital which banks must hold and so will help to ensure that banks continue to hold very strong capital buffers,” he announced.

“Strong capital buffers are the foundation of sound banking and hence I believe that the revisions to the capital adequacy ratios will enhance public confidence in our banking system.”

The tremor in the banking sector saw Crane Bank being taken over by the Central Bank.

The cause of Crane Bank’s distress was non performing loans, which had risen to more than 20 percent of its total loan portfolio and which left it significantly undercapitalized, according to Mutebile.

“Because it is a systemically important bank, we intend to resolve Crane Bank in a manner which preserves its core functions and services to customers,” he added.


Header advertisement
To Top