A report on bank takeovers in the country has pulled down the curtain on Bank of Uganda’s behind-the-scenes activities, indicating there could be questions the country’s banking regulator has to answer, writes ALON MWESIGWA.
The auditor general’s report dated August 2018 says at times there were no documented guidelines/regulations or policies in place for the identification of the purchasers of the three defunct banks (Global Trust Bank, National Bank of Commerce and Crane Bank Limited).
This could give more ammunition to those still battling the central bank in court over some of the closed banks, including Crane bank and NBC, to say their institutions were shut unfairly.
“There were also no guidelines to determine the procedures to be adopted by the central bank in the sale/transfer of assets and liabilities of the defunct banks to the identified purchaser. In the absence of guidelines, I could not establish the basis used to select the purchaser and determining the values of assets and liabilities transferred by BOU to the purchaser,” the audit concludes.
A Purchase and Assumption agreement signed between BOU and dfcu shows all loans and advances of Crane Bank Limited were transferred to dfcu except the insider loans.
At the time of the agreement, the value of the non-performing loans was Shs 570.38bn out of a loan book of Shs1.2tn. Dfcu is expected to pay Shs 200 billion for the entire takeover of the bank. So far, only Shs 98 billion has been paid.
However, the auditor general says he was unable to see how the two parties arrived at the figure of Shs 200bn.
“I could not establish how the consideration of Shs 200bn was derived from the bad book of Shs 570.38bn. Dfcu has so far paid Shs 98.3bn of the Shs 200bn liability,” the auditor general said.
Yesterday, BOU released a statement, saying: “Apart from the Shs 466bn of liquidity support to Crane Bank, the BOU also spent Shs 12bn in resolving Crane Bank. These were expenses that were necessary to ensure that the assets and liabilities of Crane Bank could be transferred to another bank, thereby allowing Crane Bank’s customers to continue having access to normal banking services.”
The audit also notes that taxpayers’ money was used to pay off depositors of defunct banks and part of this money might never be recovered at all.
For instance, government intervened with a contribution of Shs 91.2bn in July 2001 to settle both insured and uninsured deposits of the three closed banks, but there was no memorandum of understanding to show how the funds would be repaid.
At least Shs 96.431bn was contributed by the Depositors Protection Fund, GOU and BOU towards settling the insured and uninsured depositors of Cooperative bank, International Credit Bank (ICB) and Greenland bank.
This was to be refunded following the sale of assets of the closed banks. At the time of the audit, only Shs 28bn was refunded by the liquidator (BOU), leaving a balance of Shs 68.376bn.
The audit also notes that prior to the closure, BOU injected Shs 504.507bn into three closed banks (Greenland, ICB and CBL) to avert a run on the banks. Almost three quarters of that money is still outstanding and the central bank may not recover it.
“As at the time of writing this report, a sum of Shs 374.64bn was outstanding and due to BOU. The outstanding balance relating to Greenland bank and ICB is unrecoverable, according to BOU.”
This, the audit says, means BOU will not recover at least Shs 22bn injected in Greenland and ICB. The central bank said it would, however, recover from dfcu bank and Crane bank shareholders the Shs 352bn injected in the bank.