While bank closures are not uncommon in Uganda, the recent rapid shutdown of EFC and Mercantile banks caused significant concern across the sector, leaving depositors anxious about the security of their savings.

On August 1, Kigo Thinkers, a group of scholars and professionals committed to promoting intellectual discourse in Uganda, hosted a forum to explore the root causes of these closures.

The event attracted considerable public interest, with many participants calling on the Bank of Uganda to provide more frequent updates on the financial health of all banks to better protect depositors.

Ronnie Mutebi, an auditor speaking at the forum, highlighted the difficulties depositors face in accessing their funds following a bank’s closure. He pointed out the unfairness of depositors being subjected to long periods of uncertainty before they can retrieve the money they had entrusted to these institutions.

The closures have largely been attributed to insufficient capital reserves, where banks had exhausted the funds meant to protect their customers’ deposits. Recovering these funds typically requires a prolonged process involving loan recovery, asset liquidation, and other measures, adding to the financial burden on affected depositors.

According to the Deposit Protection Fund (DPF), each depositor is guaranteed a maximum reimbursement of Shs 10 million in the event of a bank closure. This cap has faced public criticism, particularly from large depositors who argue that it is inadequate.

Fred Muhumuza, Director of the Economic Forum at Makerere University Business School (MUBS), questioned why the DPF has not increased the insured amount beyond the Shs 10 million limit.

However, Kenneth Egesa, Director of Communications at the Bank of Uganda, was noncommittal about raising the insured threshold or issuing more frequent public updates on banks’ financial conditions. He explained that while the Bank of Uganda only licenses institutions that meet strict regulatory standards, disclosing a bank’s financial troubles could trigger mass withdrawals, potentially worsening the situation.

“If we were to announce that a particular bank was running out of funds, there would be a rush to withdraw money, which could cause further instability in the sector,” Egesa warned.