I&M injects Sh821m in Ugandan subsidiary to shore up capital

I&M Bank building along Kenyatta Avenue, Nairobi. FILE PHOTO | NMG

I&M Group last year invested an additional Sh821.26 million in the Uganda unit, pointing to the continued focus on complying with the revised minimum capital requirements.

The group says in the latest annual report that it made a direct additional investment of Sh538.89 million and a further Sh282.4 million through the conversion of preference shares in I&M Uganda into paid-up capital.

The additional investment made last year adds to the Sh995.84 million that the group put in the Uganda unit a year earlier, coming in the period the banking regulator made changes requiring banks to raise capital levels.

The Bank of Uganda, which is the regulator, last year issued the Financial Institutions (Revision of Minimum Capital Requirements) instrument 2022 requiring banks to have the minimum paid-up cash capital at Ushs120 billion (Sh4.4 billion) by December last year and Ush150 billion (Sh5.5 billion), by the end of June next year.

The regulations also required banks to close last year with the minimum core capital—capital funds unimpaired by losses—at Sh4.4 billion and raise it to not less than Sh5.5 billion, by the end of June next year.

The two transactions, when added to the Sh3.29 billion that I&M Group in April 2021 paid for a 90 percent stake in I&M Uganda (formerly trading as Orient Bank Uganda), raised the cumulative investment to Sh5.11 billion.

The change in capital requirements in Uganda however left the Uganda unit in breach of the core minimum capital at the end of the year.

I&M Uganda closed last year with a core capital equivalent of Sh2.7 billion against the required minimum of Sh4.4 billion, translating to a Sh1.69 billion breach.

The requirement for the minimum core capital to be at 5.5 billion by the end of June next year means I&M Group will have to put in an additional investment of UShs76.06 billion (Sh2.79 billion).

The group discloses that the Uganda unit submitted a capital restoration bank to the regulator, committing to accelerate recoveries of significant bad loans, organically grow capital reserves and inject fresh capital to ensure compliance by the end of this month.

“The actions were approved by the board of directors on February 13, 2023, and submitted to the Bank of Uganda on February 14, 2023. Bank of Uganda issued a non-objection to the bank’s capital restoration plan on February 20, 2023,” says the group.

I&M Bank Uganda closed last year with over 75,000 customers served by 11 branches and returned a profit after tax of Sh288 million last year, marking a turnaround from a net loss of Sh373 million a year earlier.

The improved performance in Uganda, Mauritius, and Rwanda helped I&M Group's net earnings to grow from Sh8.6 billion to Sh11.58 billion despite the loss in Tanzania.

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Note: The results are not exact but very close to the actual.