Kampala – Tropical Bank Uganda has become under-capitalized after it posted the biggest loss in the banking sector this year.
The bank which first opened in the country in 1973 as Libyan Arab Uganda Bank is now below the required minimum capital by 3.8 bn according to audited results published on Friday.
Commercial banks are expected to have at least Shs 25 Bn as minimum capital. For Tropical, this has been eaten into by cumulative losses the bank has been making.
With the bank under capitalized and unprofitable – it made a loss of Shs 23.9 Bn in 2019 from 5.7 Bn in 2018 – it has auditors worried.
According to KPMG, an audit firm that audited the bank’s accounts, Tropical bank’s situation points to the fact that “material uncertainty exists which cast significant doubt on Tropical Bank Limited’s ability to continue as a going concern”
A going concern is a business that is assumed will meet its financial obligations when they fall due.
The auditors added that “the COVID-19 outbreak affects the bank and results in certain uncertainties for the future financial position and performance of the bank. “
People familiar with the industry told URN that Tropical bank needs capital injection as fast as possible. If the owners can’t put in money, the bank will have to be sold.
Tropical bank is 99% owned by Libya. The bank was in 2011 – at the height of the uprising that ousted former Libyan leader Muammar al-Gaddafi – handed over to Bank of Uganda after a resolution by the United Nations Security Council to declared a freeze on all Libyan assets in foreign territories.
The Central bank handed it back to owners in 2012 when the fighting seemed to have ended. However, the financial institution has for some time now been struggling to make money in the market.
In 2018, the bank’s then managing director Kreshi Sameh Mahmud was terminated and ordered to handover office immediately. Abdulaziz Mohamed was appointed in the position.
Last year results show the bank holds Shs 43 Bn in cash with Bank of Uganda – this is the money drawn for the needs of its customers.
It’s loans to customers grew to Shs 180 Bn in 2019 from Shs 128 Bn in 2018. This should ordinarily be a good thing if the bank can collect these debts and interest.
Yet out of these large exposures – the money given to few big borrowers amount to Shs 114 Bn – putting the bank in a precarious situation in the case that big borrower fails to pay.
The bank’s assets topped Shs 316 Bn last year from Shs 289 Bn in 2018. However, some of these might have to be offloaded to get money to shower the company’s minimum capital.
Without that, Tropical bank could have a hard time operating going forward.