A proposal has been issued by the Bank of Uganda (BoU) to increase the paid-up capital requirements of financial institutions in a move that could make letters of credit (L/Cs) available from a smaller selection of banks.

Any increase is expected to cause smaller banks to pool their resources and merge to survive and compete in a market dominated by five major banks.

Minimum requirements

The BoU has proposed an increase in commercial banks' paid-up capital from 25 billion Ugandan shillings (Shs25 billion - US$7 million) to Shs150 billion (US$42 million).

Banks must satisfy the minimum capital requirements to issue L/Cs, deal in foreign exchange and extend loans to depositors and non-depositors.

Dominant banks

Five financial institutions dominate Uganda's banking sector. These include DFCU Bank, which is listed on the Uganda Securities Exchange and Centenary Bank, which is owned by a combination of Ugandan and foreign shareholders.

The remaining banks are majority foreign owned. These are Uganda's largest bank by assets, Stanbic, along with Standard Chartered and Absa.

The BoU says consultations with stakeholders on its proposal to increase the paid-up capital requirements of financial institutions are ongoing.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.