Kampala — Parliament has reduced the powers of the central bank in fixing and reviewing the minimum capital requirements for commercial banks. Any changes will require the approval of Parliament, according to Section 26 of the Financial Institutions Bill 2003 that was passed by Parliament on Wednesday.

The Bank of Uganda initially had powers to unilaterally set and review the minimum capital for a commercial bank to operate, according to the Financial Institutions Statute 1993, which has been amended.

The Bank of Uganda wanted to retain its powers to control capital requirements but the MPs led by the Chairman of the Finance Committee Ephraim Kamuntu (Sheema South) rejected the proposal.

Mr Kamuntu told Parliament that minimum capital requirements are crucial to the economy as they can be used to unfairly lock out or allow entrants into the banking sector.

He cited the case where Bank of Uganda changed the minimum capital for local banks from Shs 500 million and $1 million for foreign banks to Shs 4 billion for both early this year.

The MPs retained the Shs 4 billion minimum capital requirement for both local and foreign banks. However, the lawmakers were divided on whether the approval for the minimum capital requirement by Parliament should be through a statutory instrument or a bill brought by the Minister of Finance seeking amendment of Section 26 of the Financial Institutions Act.

Some argued for a statutory instrument saying it would easier and quicker for Parliament to approve than an amendment bill, which has to go through a committee.

Others supported the option of an amendment bill. They argued that a statutory instrument is only issued by the minister and is not subject to parliamentary debate.

The Deputy Speaker Rebecca Kadaga, who presided, reminded the MPs that they had already set a precedent under the Micro Deposit Taking Bill 2002, where a statutory instrument is subject to parliamentary approval.

The matter was voted on and those for the statutory instrument won.