TOUGH TIMES! Auditor General warns of financial stress at two gov't banks

The Auditor General, John Muwanga has warned that the failure by Government to fulfill its financial obligations in two public owned banks; Post Bank Uganda Limited and Tropical Bank Limited through a capital injection to a tune of Shs141Bn, would end their operations as commercial banks in Uganda.

In his December 2022 audit report, Muwanga raised concern on the failure by Ministry of Finance, Planning and Economic Development to plan for the capitalisation of investment in these two financial institutions that Government owns shares, saying it puts the future of these banks in jeopardy and risk closure if the capital requirements aren’t met by June 2024.

He cited the Financial Institutions revision of minimum capital Requirements Instrument, 2022, that provides that for a person to transact in the financial institution business in the capacity of a bank, they should have a minimum paid-up capital of not less than 7million currency points equivalent to Shs120Bn by December 2022 invested initially in such liquid assets in Uganda as the central bank may approve.

Muwanga added that the same instrument further provides that a person proposing to transact a financial institution business in the capacity of a bank shall have a minimum paid-up capital of not less than seven million five hundred thousand currency points equivalent to Shs150Bn by 30thJune 2024 invested initially in such liquid assets in Uganda as the central bank may approve.

Government co-owns Tropical Bank Limited with the Libyan Government and the Bank’s paid up capital stands at Shs88.2Bn, but by December 2022, Tropical Bank needed another capital injection to a tune of Shs31.8Bn and by 30th June 2024, Tropical Bank needs recapitalisation to a tune of Shs61.8Bn.

Post Bank Limited currently has paid up capital worth Shs98Bn, but by December 2022, the Bank needed recapitalisation to a tune of Shs22Bn and subsequently Shs52Bn by June 2024 for Bank of Uganda to allow it to operate as a Bank.

The Auditor General urged Government to avail the additional funding especially in the case of financial situations in which Government has majority shareholding and further urged the Ministry of Finance for the case of Tropical Bank Limited, to liaise with the Libyan Government and other shareholders to secure a total of Shs31.8Bn to be compliant by 31st December 2022.

“In addition, the Government would have to ensure that in the next financial year, it plans for capital injection in all the three banks of a total of Shs141.8Bnto ensure that the banks are compliant as of 30thJune 2024. Failure to plan for the capital requirements for the different financial institutions may result in the banks not being compliant and therefore not authorized to operate as banks, “noted Muwanga.

When the issue was brought to officials from the Ministry of Finance, they promised that they would budget for it accordingly.

According to the Auditor General, in 2021/2022 PostBank Uganda Limited recorded profits to a tune of Shs12. 236Bn in 2021/2022 up from Shs10. 070Bn recorded in 2020/2021.

However, of the four Banks where Government owns shares including Housing Finance Bank Limited, Uganda Development Bank Limited, Pride Microfinance Limited and Post Bank Limited that were audited by the Auditor General, only Housing Finance Bank Limited paid Government dividends to a tune of Shs20.5Bn in 2021/2022 with the trio refusing to give any penny to Government.

POSTBANK UGANDA LIMITED SPEAKS OUT

Pot bank has however allayed customer fears of a possible closure in a statement sent to this publication.

“Reference is made to media reports suggesting that PostBank is running out of capital.

We wish to clarify that PostBank already has a paid-up capital of UGX. 112Bn and subject to shareholders’ approval, the 2022 profits will be converted into paid up capital. This will ensure compliance with the UGX. 120Bn requirement.

“PostBank and our shareholder are confident that we shall meet the full required UGX. 150Bn as stipulated in the law. We remain committed to offering affordable and sustainable financial services that drive financial inclusion for socio-economic development.”

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