Govt urged to raise protected deposit as Mercantile Credit Bank’s large depositors still demand

Mercentile Credit Bank was closed in June 2024.

The Ugandan government has been urged to raise the amount of protected deposit in banks.

The Deposit Protection Fund of Uganda (DPF), a government agency that provides deposit insurance to customers of deposit-taking institutions licensed by Bank of Uganda pays those who fall within the protected limit of shs10 million.

Speaking during the Kigo Thinkers Baraza about the closure of Mercantile Credit Bank held at Golden Tulip Hotel in Kampala, some of the depositors said whereas their smaller counterparts were paid, the large ones are yet to be yet fully paid.

Samuel Kwizera, the chairman Pepsi-Cola Village along Port Bell Road said many cattle traders who were depositors in the bank were affected by the closure.

“Although the Deposit Protection Fund compensated smaller depositors, the shs10 million limit left a significant number of depositors partially or entirely uncompensated,” Kwizera said.

In June last year, Bank of Uganda (BoU) placed Mercantile Credit Bank under liquidation after being undercapitalized.

In August, the same year, BoU invited large depositors for payment.

Speaking during the baraza on Thursday, Steven Kasenge, an auditor who was part of a sacco that had an account in the bank said there has been poor communication from BoU about the payments to large depositors.

“The unfortunate thing is that communication has not been forthcoming. Even when they reimbursed some money, the large depositors just checked accounts and found it. They have not given a roadmap of how it will be paid in full. We hope going forward BoU can come forward to tell us what is going to happen,” Kasenge said.

Raise protected deposit

The experts said it is high time government enacted a regulation that will see protected deposit raised.

“So far regulators have already increased the amount of capital needed for operating a bank. They should have been more holistic to look at the entire banking sector. Why increase for commercial banks and leave out the protected deposit? Inconsistencies in the regulatory framework should be addressed to ensure such disastrous aspects can be mitigated,” Philip Katamba, a  financial advisor urged.

However, retired banker, Richard Byarugaba defended BoU’s move to have commercial banks increase their capital.

He said the move is aimed at solving problems with the global financial sector.

“The situation has become a little bit riskier and central bank has seen it fit to increase capital requirement for banks. This is because of what is happening in international market. The banking sector is not consolidated. There are too many players. For example, the Kenyan market which is  two times our economy has similar banks as Uganda. It implies if you have got many players in market, it means you are spending a lot of money,” Byarugaba said.

“In  the eyes of central bank, increasing capital means weaker players will be eliminated and remain with those who can withstand turbulence. We need consolidation to weed out weak players. This can help remain those who can withstand risks in modern times.”

Angelo Izama, a journalist said it is high time BoU became flexible.

“The exposure we are discussing largely comprises large depositors who are term customers of bank. Many of these are in construction sector and in the meat processing sector etc.  These are the guys facing this exposure. The only way to navigate this process is may be to ask BOU to be much flexible in that engagement,” Izama said.