DTB Centre, home to DTB Bank in Kampala, Uganda. Many banks have moved in accordance with the compliance directive. PHOTO | FILE | NMG
Nearly two years after the central bank gave an order aimed at protecting customers’ money in the event of a financial institution collapsing, commercial banks operating in Uganda are still sluggishly implementing the regulator’s directive.
The Bank of Uganda (BoU) has since early last year been pushing commercial banks, credit institutions and microfinance deposit-taking institutions, which are all regulated by the central bank, to update customer information and submit to the Deposit Protection Fund (DPF).
But The EastAfrican understands that compliance among the supervised financial institutions to compile customer information is on average 60 per cent as of September this year, according to Julia Oyet, the DPF chief executive.
“I can say that 60 per cent of customers’ information is updated,” she said.
Though a notice placed in the local media on October 12, the Bank of Uganda and the Deposit Protection Fund remind bank customers to update their personal information before end of December 30.
Ms Oyet says this is the second such notice that the DPF has issued, directing commercial banks, credit institutions and microfinance deposit taking institutions — all under the supervision of the central bank — over the same, but it is not clear why it has dragged on.
SAFETY NET
As part of this process, customers are required to submit their national identification number, as well as details of a preferred mode of payment, with an option of an alternative bank account or a mobile money number, the notice said.
Uganda Bankers Association chief executive officer Wilbrod Owor, who also sits on the DPF board, says this move is a measure is a “safety net” given the history of commercial banks and credit institutions in country’s banking industry collapsing, or being closed by the regulator for outright liquidation, leaving customers stranded and unable to access their savings.
“This creates alternative avenues to directly transfer the customer’s deposits in case a bank went under,” he said.
The DPF’s recent notice has prompted reaction from the industry, with some of the major banks moving to comply with the directive, to meet the December deadline.
On November 4, Standard Chartered Bank Uganda Ltd wrote to its customers to adhere to these regulations and directives issued by BoU, within 30 days.
“In February 2019, Bank of Uganda issued a directive for the updating of depositor records to ensure that the Deposit Protection Fund (DPF) is able to pay depositors in the event of closure of a Financial Institution,” Vicky Nakidde, the Head of Distribution at Standard Chartered Bank, informed customers.
“In order to ensure compliance with the above directive, we request that you provide us with an alternative number of an account held in another financial institution regulated by Bank of Uganda or your registered mobile money number,” she added.
REASSURANCES
Uganda’s banking industry is sensitive to notices about customer deposits protection as it may indicate that a financial institution is on the verge of collapse, which explains why BoU’s notice partly reads “the Bank of Uganda wishes to reassure the public that the financial sector remains safe and sound.”
The most recent financial institution to go under is Crane Bank in 2016, after it was found to be “significantly undercapitalised” which triggered a parliamentary probe into BoU’s supervision of the sector.
The report of the parliamentary probe into the collapse and closure of seven banks from 1993-2016 was made public in February 2019 and faulted the central bank, among other things, on the settlement of insured deposits of customers in the banks. that were closed.
The report raised concern over a Ush91 billion ($24.5 million) government intervention in July 2001 to settle both insured and uninsured deposits of the Co-operative Bank, International Bank of Commerce and Greenland Bank; the compensation was extended without a memorandum of understanding between BoU and the government.
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