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Mercantile bank was closed a few months ago due to undercapitalization and poor corporate governance
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Former clients of Mercantile Credit Bank, which ceased operations two months ago, are calling on President Museveni to expedite the release of their funds held by the defunct bank through the Bank of Uganda (BOU). Per the Financial Institutions (Deposit Protection Fund) Regulations 2019, the Deposit Protection Fund (DPF) pays depositors up to sh10m. Those with deposits above this limit are to be paid the balance by a liquidator appointed by BOU.
On June 18, BOU revoked Mercantile Credit Bank's license, citing poor corporate governance and insufficient capitalization, which put customer deposits at risk. Samuel Aliku, chairman of LC I, Coca Cola Village, expressed fears of security repercussions if BOU does not clarify the fate of depositors, especially those with savings above sh10m. “The former clients, mainly carpenters and butchers, were hit hard by the bank’s closure and threatened violence before the DPF intervened and paid the majority of claimants,” Aliku said.
Christine Kiconco, another former client, recounted how she was unable to withdraw operational funds due to the sudden closure. Paul Lubuya, managing director of Virgin Woods, criticized BOU for delays in refunding deposits above sh10m, stressing that many depositors' life savings were locked up in Mercantile. Bonny Katumba, a board member at Kampala Meat Packers, called for immediate intervention from BOU to engage depositors and provide clarity on the situation.
BOU attributed Mercantile Bank's closure to undercapitalization and poor corporate governance. Deputy Governor Michael Atingi-Ego stated that the move was to protect depositors and maintain financial stability. Under the Financial Institutions Act, 2004 (as amended), the minimum capital required for financial institutions was revised, with credit institutions needing sh25b by June 30, 2024.
BOU, along with the DPF, is expected to handle depositors’ claims. DPF CEO Dr. Julia Olima Oyet stated that payments to individual depositors with balances of sh1m or less began via mobile money on June 22. Deposits above the protected limit of sh10m will be handled by BOU.
BOU has previously closed financially unhealthy banks such as Teefe Trust Bank, International Credit Bank, Cooperative Bank, Greenland Bank, Global Trust Bank Uganda, National Bank of Commerce, and Crane Bank Limited. Parliamentary inquiries have revealed mismanagement in these closures, leading to losses for shareholders and account holders, with some shareholders seeking compensation through the courts.
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