Mercantile Bank becomes the latest indigenously owned bank to fall, following the same path as Crane Bank, Greenland Bank, Teefe, Cooperative Bank, and the National Bank of Commerce, among others.
On June 18, the Bank of Uganda announced the closure of Mercantile Credit Bank, one of the country’s financial institutions.
Two weeks after the closure of Mercantile Bank, BOU released the State of the Economy report, in which it indicated that the country has a low and stable inflation environment and a stable exchange rate on account of prudent monetary policy.
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The report listed what it called a positive outlook in spite of existing near-term challenges, which it described as “rising interest rates, subdued private sector credit, a persistent fiscal deficit, and an under-financed current account deficit that is not fully financed by the financial account.”
Tellingly, the report expressed concern that there is a slowing growth of private sector credit, especially in the banking sector, and linked it to a potential crowding out of the private sector. Charles Bbosa, an economist, reasons that the closure of Mercantile Bank means that the country is conceding the financial sector to foreign banks, whose major objective is profit, which they repatriate back to their countries.
“With the closure of local banks, there is no way interest rates will come down. BOU is leading the crowding out of the private sector by closing banks. It should, therefore, first look at itself when it is diagnosing the challenges the economy is facing,” he says.
UNCERTAIN FATE OF DEPOSITORS
Just days before the closure of Mercantile Bank, it ran advertisements in the media assuring depositors who did save with it that it was solid and infallible because it was regulated by the Bank of Uganda.
Many people, including unit trusts, had billions of shillings saved in the bank, but in the wake of the abrupt closure, the Deposit Protection Fund (DPF) has only paid those depositors with Shs 10 million or less, leaving those that had a lot of money to wait for BOU’s next course of action.
Since the closure of Mercantile, the central bank has remained silent on when those who had more than Shs 10 million will get their money so they can continue to operate their businesses.
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