When Bank of Uganda, on Thursday (January 29, 2026), announced that Finance Trust Bank had been authorised to transition from a Tier I commercial bank to a Tier II credit institution, it marked more than a routine regulatory adjustment.
It was the latest chapter in a quiet but far-reaching restructuring of Uganda’s banking sector, one triggered by a sharp and unprecedented increase in minimum capital requirements.
With Finance Trust’s downgrade, the number of banks that have voluntarily down-scaled from commercial banking operations rises to four.
This underscores how a policy decision intended to strengthen financial stability has also forced hard strategic choices across the industry.
The seeds of the current realignment, which intensified in 2024, were planted on November 16, 2022, when Finance Minister Matia Kasaija signed a statutory instrument that dramatically revised capital thresholds.
Commercial banks were required to raise paid-up capital sixfold, from UGX25 billion to UGX120 billion by December 31, 2022, with a further increase to UGX150 billion by June 30, 2024.
Credit institutions, meanwhile, were required to lift capital from UGX1 billion to UGX20 billion, and later to UGX25 billion.
In a July 6, 2023, circular, Bank of Uganda justified the move as necessary to “enhance the financial system’s resilience to shocks, promote financial stability, and advance the capacity of financial institutions to meet the growing needs of a dynamic economy.”
On the surface, the transition appeared orderly. The central bank repeatedly reassured the public that most institutions had complied, while those that had not had credible capital restoration plans.
But behind the scenes, the new thresholds exposed deep fault lines, particularly among smaller banks and recent market entrants.
Early warning signs
The first visible crack came even before the statutory instrument was signed. In May 2022, Afriland First Bank voluntarily exited the market, barely two years after receiving its commercial banking licence.
Officially, the decision followed a strategic review by its shareholders, but the timing proved telling.
Bank of Uganda had already signalled, as early as August 2021, that capital requirements were under review.
Afriland, which never issued a single loan and held a market share of just 0.08%, may have concluded that the looming capital ramp-up, amid dampened growth and a saturated top tier, was a bet not worth taking.
In hindsight, Afriland’s exit later looked less like an isolated business decision and more like the first casualty of a sector bracing for a capital shock.
Downgrades, deals, and closures
By mid-2023, the strain became harder to mask. Although Bank of Uganda said most financial institutions were compliant, it later emerged, through disclosures to the International Monetary Fund, that as of September 30, 2023, only 18 out of 25 commercial banks had met the new capital thresholds.
Seven banks, representing about 5.1% of sector assets, had not. Of these, three had applied to downgrade to Tier II credit institution licences, three began onboarding new shareholders, and one continued to pursue recapitalisation from existing owners.
In March 2024, Bank of Uganda publicly named the downgrade applicants as ABC Capital Bank, Opportunity Bank, and Guaranty Trust Bank.
Each acknowledged, implicitly or explicitly, that mobilising UGX 150 billion in paid-up capital had proved unattainable within the required timelines.
At the same time, the tougher regime claimed more severe casualties. EFC Uganda, a long-standing credit institution, was placed under liquidation in January 2024 after failing to resolve undercapitalisation and governance weaknesses.
Equity Bank Rwanda Hit by Fraud, Months After Group CEO, James Mwangi’s Integrity CrackdownIn June 2024, Mercantile Credit Bank, after more than 30 years of operation, suffered the same fate.
Together, the closures shut more than 5,250 depositor accounts and led to the loss of over 200 jobs, a reminder that regulatory tightening carries real social and economic costs.
Finance Trust’s strategic pivot
Thus, Finance Trust Bank’s downgrade, which began on January 1 and is expected to be completed by March 31, fits squarely into a broader pattern of strategic retreat rather than regulatory failure.
Bank of Uganda’s notice notes that Finance Trust meets the minimum capital requirements for a Tier II licence and was granted a three-month transition period to phase out products reserved for commercial banks.
Of course, the decision followed boardroom discussions, in which the board of Finance Trust took a strategic shift to reposition the institution around its core customer base.
Notably, Finance Trust had earlier sought to strengthen its capital position through a proposed majority 80% acquisition by Nigeria’s Access Holdings.
While that deal signalled intent to remain in the top tier, the eventual downgrade suggests that the economics of scaling up to UGX150 billion, amid heightened competition and thinner margins, proved prohibitive. Access Holdings remained muted.
Sources familiar with boardroom discussions indicate that the capital injection promised by Access Bank has been slow to arrive, to which the Bank of Uganda had grown impatient and jittery, given that the deadline for meeting the new minimum requirement had come and passed more than one and a half years ago.
The issue had become complex and needed to have a definitive end, at least according to people familiar with the matter.
Finance Trust Bank was granted a commercial bank licence about 13 years ago, in November 2013.
Thus, the downgrade, even al though the bank says it is a strategic realignment, could have been a difficult, but the only best decision.
A smaller, sturdier system?
But for Bank of Uganda, from a supervisory perspective, the capital overhaul appears to be achieving its primary objective: fewer, better-capitalised institutions with greater buffers against shocks like those experienced during the Covid-19 pandemic, when Bank of Uganda had to deploy emergency liquidity windows.
Industry observers such as PwC have previously argued that the actions taken by banks, including downgrades, mergers, exits, and recapitalisations, demonstrate an acceptance of the central bank’s “unwavering commitment” to financial stability.
Yet the transformation has come at a price. Uganda now has fewer commercial banks than it did in 2019 – now have dropped to 21 from 25 – reduced product diversity in the Tier I space, and a sector that is increasingly concentrated at the top.
The new reality
As Finance Trust joins ABC Capital, Opportunity Bank, and Guaranty Trust Bank in the Tier II space, the banking landscape is settling into a new equilibrium, one shaped less by ambition and more by balance-sheet muscle.
The sharp increase in minimum capital did not merely strengthen the system; it forced it to choose. Some banks raised funds and pressed on. Others stepped down. A few disappeared altogether.
What remains is a leaner, more resilient sector, still adjusting to the aftershocks of a regulatory decision that has permanently realigned the financial industry.
