BoU clears Finance Trust Bank to downgrade to Tier II credit institution

Kampala, Uganda | THE INDEPENDENT | Finance Trust Bank will transition from a Tier I commercial bank to a Tier II credit institution effective April 1, following approval by the Bank of Uganda (BoU). The downgrade from a Tier I commercial bank to a Tier II credit institution followed a strategic decision by its board.

The move aligns with tighter capital requirements introduced under the Financial Institutions Act and reflects a broader regulatory push encouraging institutions to downgrade, merge, or consolidate where necessary to strengthen sector stability.

BoU Director of Communications Kenneth Egesa said the regulator has granted the bank a three-month transition period starting January 1, 2026, during which it will phase out products and operational processes that require a commercial banking licence.

Under Uganda’s regulatory framework, Tier II credit institutions are licensed and supervised by the Bank of Uganda and are permitted to accept time and call deposits and extend credit.

However, they are prohibited from operating cheque accounts or engaging in foreign exchange trading. These institutions typically focus on small and medium enterprises (SMEs) and retail customers.

Tier II institutions operate under the Financial Institutions Act and are subject to a minimum capital requirement of UGX 25 billion, revised upward from UGX 10 billion in 2024.

In contrast, amendments to the Act in 2022 raised the minimum paid-up capital for commercial banks to UGX 150 billion from UGX 120 billion, a regulatory move aimed at strengthening the resilience of the banking sector and preventing institutional failures.

While the higher capital thresholds drew criticism from some Members of Parliament and smaller banks, the Bank of Uganda and the Ministry of Finance advised affected institutions to consider downgrading, mergers, or acquisitions where necessary.

Several institutions have already transitioned to Tier II status, including Pride Microfinance Bank, BRAC Uganda Bank Ltd, Yako Bank, Opportunity Bank, ABC Capital Bank, and Guaranty Trust Bank (GTBank) Uganda.

The latter three downgraded from commercial bank status within the past two years. Egesa said the three-month transition period is designed to ensure continuity of services for customers and to mitigate any risks to financial sector stability.

He added that the change in status follows a strategic decision by Finance Trust Bank’s Board of Directors to reposition the institution and focus more effectively on its core customer base. He further noted that the bank meets the minimum capital requirements for a Tier II credit institution.

Finance Trust Bank traces its origins to 1984, when it was established as Uganda Women’s Finance Trust Limited to provide financial services to low-income populations, particularly women. It was later rebranded as Uganda Finance Trust Limited and operated as a Tier III microfinance deposit-taking institution under Bank of Uganda supervision.

In 2013, the institution obtained a full commercial banking licence and rebranded as Finance Trust Bank. As of May 2024, the bank operated 35 branches across the country. Its shareholding structure comprised Nigeria’s Access Bank Group with an 80.89 percent stake, Uganda Women’s Trust with 12.89 percent, and minority shareholders holding 6.22 percent.

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