Bank of Uganda

Latest report from the Bank of Uganda (BoU) show that the market value of the Uganda Deposit Protection Fund stood at Shs465 billion at end of May, 2017 paving the way for officials at the Central Bank to set up a separate team to run the entity on an investment basis.

The DPF acts as a deposit insurance scheme for customers of contributing financial institutions in the case of a bank failure, and is funded by regulated financial institutions which pay premiums. The DPF will pay off depositors an amount of up to Shs3, 000,000 if a financial institution is closed but according to BoU, the possibility of raising this cap is being reviewed. Prior to the amended FIA, the DPF was under statutory management of BoU.

“BoU has seconded an interim team of officials to operationalise the Deposit Protection Fund (DPF). DPF is a newly established institution following the enactment of the Financial Institutions (Amendment) Act (FIA) 2016,” a statement by BoU reads in part.

Stories Continues after ad

The new team led by a Chief Executive Officer will ensure that premiums remitted by financial institutions regulated by the BoU are securely maintained and invested prudently.

“DPF now has its own Board and Management, and this is expected to help the Fund grow in leaps and bounds as more opportunities for investment are explored. Furthermore, the Fund will now have proper procedures to ensure depositors are quickly paid off in the case of a bank failure,” The CEO Ms. Julia Oyet says.

The Fund will also act as the ‘second watchful eye’ over the sector, and will liaise with the BOU to ensure safety and soundness of the financial sector.

“The public should know that their deposits are well protected; people should put their money in regulated financial institutions and enjoy the benefits of financial inclusion which include access to cheaper credit and ability to access your savings.” Ms Oyet noted.

The establishment of the DPF as a body corporate is yet another step in efforts to strengthen the financial sector and provide a robust framework for the protection of depositors’ funds, Oyet added.

Contributing institutions to the DPF are the commercial banks, credit institutions and microfinance deposit-taking Institutions. The Financial Institutions Act (FIA) also grants the BoU power to appoint DPF as receiver or liquidator of a financial institution if the need should arise.

By November 2016, there were more than 4.1 million depositors in Uganda’s commercial banks.

The Uganda Deposit Protection Fund became operational in 1997, with each account protected up to shs5 million.

The Depositor Insurance Law was enacted by Parliament and states that all depositors must be paid within 90 days of a bank’s failure and that the failing institution must be sold by the auctioning of its assets within six months of its seizure by the Central Bank.

If the Central Bank determines that the failed institution will fetch a better economic return, if sold as a whole, then it will re-open under new ownership and management, provided the new owners and managers meet the approval of the BoU, case in point being the recent takeover of Crane Bank by the Dfcu Group.