EXCLUSIVE: Opportunity Bank to downgrade license to become a Micro-finance Deposit-Taking Institution

Hardly 5 years, after being granted a tier-1 commercial banking license, Opportunity Bank is downgrading back to a Tier 2 Microfinance Deposit-taking Institution (MDI), CEO East Africa Magazine can exclusively reveal.

This decision has been confirmed to CEO East Africa Magazine, in an email. It follows the Financial Institutions (Revision of Minimum Capital Requirements) Instrument 2022 of November 2022 that requires financial institutions to significantly increase their capital buffers.

“Over the last 12 months, Opportunity Bank has comprehensively reviewed its strategic plan, business model, service offerings and target customer market. The outcome of this review shall be a transformed Opportunity Bank that is, with the approval of Bank of Uganda, more customer experience and service-centric,” Owen Spencer Amanya, the financial institution’s Managing Director wrote in the e-mail.

“This change and re-focussing of strategic direction and business model has been determined as a key success factor in ensuring that Opportunity Bank maintains the course on ensuring access and availability of financial services to the underserved and unserved, in a re-alignment with its founding mandate. At an appropriate date, Opportunity Bank shall, with regards to the Bank of Uganda approved strategic changes and associated benefits thereof, make announcements to its current and future customers,” Mr. Amanya added.

Under the revised capitalisation rules, government increased the minimum capital requirements for banks by  6 times or 500% from UGX25 billion to UGX150 billion. The increment would however be tiered, starting with a minimum capital buffer of UGX120 billion by the 31st of December 2022 and then UGX150 billion by the 30th of June 2024.

Commercial banks also had to have minimum capital funds unimpaired by losses (core capital) of UGX 120 billion by 31 December 2022, and UGX150 billion by 30 June 2024.

Under the same statutory instrument, minimum capital requirements for credit institutions were also increased by 25 times or 1900% from UGX1 billion to UGX25 billion by 30th June 2024. Similarly, the increments are tiered, starting with a minimum capital buffer of at least UGX20 billion by the end of December 2022. 

Micro Deposit-taking Institutions (MDIs) were also required to increase their minimum capital to at least UGX8 billion by 31st December 2022 (from UGX1 billion) and UGX10 billion by June 2024. 

As of the end of December 2022, Opportunity Bank’s share capital stood at UGX32 billion and core capital at UGX24.2 billion. 

That means, Opportunity Bank’s share capital was UGX88 billion short of the required UGX120 billion and would be UGX118 billion short by the June 2024 deadline. The bank’s core capital stood at UGX24.2 billion⏤ UGX95.8 billion short of the revised UGX120 billion at the end of December 2022 and a severe shortage of UGX125.8 billion at the end of June 2024.

To retain its commercial banking license, Opportunity Bank shareholders would have had to inject into the bank a minimum of UGX118 billion. 

Opportunity Bank was founded in 1995 as a Micro Credit program from Food for the Hungry International but is now owned by Opportunity International Group (59.5%) which focuses on the transformation of communities and MyBucks SA (39.6%) a fintech company listed on the Frankfurt Stock Exchange. Other shareholders include Faulu Uganda (0.8%) and Food for the Hungry (0.1%). 

In 2019 it was granted a commercial banking license. It currently has a network of 24 branches and 24 ATM Points distributed in the Central, Eastern, Western and Northern regions of the country.

Although the 25th bank to enter the tier 1 commercial banking space, the bank had, thanks to a thriving microfinance business, hit the ground running in the 23rd position by assets,  24th by deposits 20th by lending and 17th by profitability- going by 2018 results.

As of the end of 2022, its market position by assets and lending hadn’t changed. It had however moved up, to the 21st in terms of deposits. With just UGX200 million in net profit in 2022, its profitability position dropped to the 23rd. In fact, a UGX6.3 billion loss in 2021, nearly twice outstripped all its combined profits (UGX3.8 billion) since it became a tier 1 commercial bank.

It appears this poor show in the 4 years it has been a tier 1 commercial bank, either didn’t make commercial sense or did not give shareholders, enough confidence to fork out an extra UGX120 billion to recapitalise the bank. In fact, the money that Opportunity Bank would require to recapitalise as per the new rules, approximately UGX118 billion, is almost 50% of its entire assets (UGX262 billion) as of the end of 2022. 

However, at UGX32 billion in share capital and UGX24.2 billion in core capital, Opportunity Bank comfortably meets the revised capital buffers required of Microfinance Deposit-taking Institutions.

As the June 2024 deadlined Opportunity Bank becomes the third financial institution to become adversely affected by the new capitalisation regulations.

On 18th January 2024 Finance Trust Bank, announced that it had accepted an acquisition of 80% of its shares, by Nigeria’s Access Bank Plc (Access). This is after Finance Trust Bank’s shareholders were reluctant to infuse a fresh UGX120 billion into the bank, following the government of Uganda’s 6fold increment of commercial banking capital buffers.   

Bank of Uganda, on January 19th, 2024 placed EFC Uganda Limited under liquidation, revoked its license, and ordered the winding up of its affairs. This, the Central Bank said was due to “significant undercapitalisation and poor corporate governance” which if left unattended to, would be “detrimental to the interests of its depositors”.

By the end of December 2022, growing accumulated losses (UGX22.6 billion) had eroded EFC’s shareholders’ 3-time efforts to save the MDI with a total of nearly UGX20 billion in fresh capital infusions, leaving EFC with only UGX7.91 billion in capital. With existing shareholders unwilling to inject more capital and a buyer taking too long to suffice, the shareholders let EFC die a natural death.