Savers in two collapsed Ugandan lenders were paid only 16.54 percent of their total claims by June 30, 2024, largely because of inaccurate information, hidden details and non-responsiveness to regulatory guidance, new disclosures show.

This frustrated the compensation process after the closure of EFC Uganda Ltd and Mercantile Credit Bank in January and June 2024 respectively, allowing savers to only access Ush613.75 million ($164,543) of their total savings in the two institutions, and leaving Ush3.09 billion ($828,414) unpaid.

The Uganda Deposit Protection Fund (DPF) says it held press conferences to inform the public and depositors about the procedures and timelines for reimbursement following the closure of the two banks, but the payout process has been ongoing with a few challenges, especially for depositors with incomplete Single Customer View (SCV) and Know Your Customer (KYC) data.“The Fund faced challenges in reimbursing depositors due to inaccurate information, untraceable KYC, and non-responsive depositors,” the DPF says in its latest integrated annual report for 2024.“To address this, the Fund issued reminders in the press, online, and via radio, and worked with the Bank of Uganda for additional Know Your Customer (KYC) details. Despite these efforts, the Fund remains unsure when depositors will claim their protected deposits.”A KYC check is the mandatory process of identifying and verifying the client's identity when opening an account and periodically over time.

DPF data shows the total protected deposits (net of loan balances) in the two institutions stood at Ush3.71 billion ($1 million), of which only 16.54 percent ($164,543) was paid out to depositors, leaving an unpaid balance of Ush3.09 billion ($828,414) as at June 30, 2024.

The deposit insurance scheme compensates victims of failed banks by up to Ush10 million ($2,680), with those customers having paid more than the excess from the liquidation proceeds.

EFC (U) Ltd and Mercantile Credit Bank Ltd were closed by the Bank of Uganda (BoU) on January 19, 2024, and June 18, 2024, respectively, prompting the DPF to embark on paying the protected deposits up to a maximum of Ush10 million per depositor per institution.

The EFC’s total protected deposits (net of loans) stood at Ush655.63 million ($175,771), of which amount paid to verified depositors stood at Ush496.57 million ($133,128), leaving unpaid deposit balance of Ush159.05 million ($42,640.5).

Its total loan balances recovered from depositors and not yet remitted to the liquidator (BoU) were Ush877.7 million ($235,307) as at June 30, 2024, with the total recovered loans amount payable as Ush877.7 million ($235,307).

The total protected deposit balance (net of loans) for Mercantile Credit Bank Ltd stood at Ush3.05 billion ($817,690), of which Ush117.17 million ($31,412) was paid out to verified depositors, leaving an unpaid deposit balance of Ush2.93 billion ($785,518).

DPF started to pay depositors of the two financial institutions within six days after closure in order to foster the much-needed confidence in the banking sector.

Mercantile Credit Bank Ltd, a tier-2 credit institution, was shut down on account of insufficient liquidity levels and failure to comply with new capital requirements.

The minimum capital requirements for a tier-2 credit institution were raised from Ush10 billion ($2.68 million) to Ush25 billion ($6.7 million) effective June 30, 2024, alongside increases applied to existing minimum capital requirements for both commercial banks and micro deposit-taking institutions (MDIs).

Financial institutions regulated by BoU are required to contribute annual premiums to the DPF, where annual premiums are computed at 0.2 percent of the average weighted deposit liabilities for the contributing institution in the previous financial year, while risk-adjusted premiums are based on the quarterly ratings from the Bank of Uganda.

An institution rated marginal pays an extra charge of 0.1 percent of average weighted deposit liabilities, while an institution rated unsatisfactory pays an extra charge of 0.2 percent of the average weighted deposit liabilities, in addition to the annual premium.

After the closure of EFC (U) Limited and Mercantile Credit Bank Ltd, DPF embarked on the exercise of paying the protected deposits up to a maximum of Ush10 million, each marking the first payout since DPF was established as a separate legal entity from the central bank in 2016.

Of the Ush10 million compensation, 98 percent of the value of the total deposits in the financial sector are fully protected, thus providing confidence in the sector by ensuring that a majority of depositors are paid in time if a contributing institution is closed, and the Fund is advised to payout.

Total deposits within the banking sector grew by four percent to Ush36.4 trillion ($9.75 billion) as at June 30, 2024 from Ush35 trillion ($9.38 billion) as at June 30, 2023, of which 19.3 percent (Ush7 trillion -- $1.87 billion) of the total deposits were protected.

The banking sector also witnessed an 11.7 percent increase (2.8 million) in the total number of accounts to 26.8 million from 24 million.

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