It is now official. There is no doubt that Bank of Uganda (BOU) did not sell but gifted former Crane Bank to its competitor DFCU Bank in January 2017, according to Deputy Governor, Dr. Louis Kasekende, who said recently that the bank at that time was in a situation where the value of its assets was much less than liabilities, hence not suitable for any investors to buy it.
Kasekende’s revelation was confirmed on April 6, 2018 by his boss Prof. Emmanuel Tumusiime-Mutebile in Kampala that indeed Crane Bank was not sold. “In fact, Crane Bank was not sold to DFCU. A sale was not possible, given that Crane Bank was massively insolvent when the BOU intervened and took it over,” Mutebile said during the UBA informal dinner at Citibank Managing Director’s residence.
The ‘gift’ to the DFCU bank in January 2017 created excitement in Uganda’s banking industry because in late November 2016, Mutebile had stated that Crane Bank was not about to fail. BOU had taken over the management of Crane Bank in October 2016.
Speaking at the Annual Bankers Dinner in Kampala in November 2016, Mutebile told the gatherers that Crane Bank was not about to fail as a commercial Bank. He said the undercapitalization of the bank at the time would not warrant a bank failure. At that time, he never mentioned of the Shs260 billion negative net worth of the bank, which his deputy- Kasekende, recently said caused its insolvency.
Mutebile said at the function that: “So, those of our people who claim that the bank has collapsed are fools. The bank is alive and well, if not kicking,” he said at the annual event that is always attended by top bank executives. Many believed what Mutebile told them because he was the regulator and expected him to know what was really happening with Crane. They were to be shocked when Mutebile announced in January 2017 that DFCU had taken over Crane Bank.
Much as BOU had taken over Crane Bank, Mutebile would go ahead to tell executives that 2016 had been a tough year for the banking sector as profitability and income were all affected by an economy in distress.
“We cannot deny that it has been a difficult year for the industry because of the very low asset growth with sharp depreciation in asset quality and a decline in returns on equity. This has been a very difficult year,” he said adding that the rise in non-performing loans (NPLs) had created a big challenge. Crane Bank had its NPLs grow from Shs145 billion in 2015 to Shs200 billion.
During that the bankers’ meeting in 2016, Mutebile did not tell the public that Crane Bank was facing problems of its own mismanagement or extensive inside lending. That information only came a few days ago as Kasekende addressed guests at the 20th Year Anniversary dinner for the Uganda Securities Exchange.
The BOU Annual Supervision Report, December 2016 indicates that before transferring majority of Crane Bank liabilities and assets, a vigorous bidding exercise was followed as ten institutions showed interest. Mutebile and Kasekende in their arguments do not tell us whether all the ten institutions wanted Crane Bank for free. Reports indicate that some investors wanted to offer cash for this deal but BOU overlooked them in favour of DFCU, which, according to the agreement will only pay some money in the future, but it is earning profits now.
Reports that BOU excluded former Crane Bankers shareholders from negotiations is matter of concern, actually the former Executive Director in charge of Supervision at BoU Justine Bagyenda told journalist at Parliament that they did transact without consulting shareholders of CBL. However, Bagyenda contradicts herself in the same interview that shareholders to any bank are useless without depositors but in this case, CBL had both shareholders and sound depositors.
They say that contravened the Financial Institutions Act, 2014. Yet they argue that the agreement between BOU and DFCU does not state the value of liabilities and assets taken over by DFCU. “There is no transparency here,” said an analyst when asked to comment on the matter. It is important to know the exact value of those liabilities and assets,” he added.
Argument by analysts is that BOU, having invested hundreds of billions of shillings (taxpayers’ money), they should have asked for some cash immediately as they handed over Crane Bank to DFCU. Yet analysts say it is unfair for BOU to pay back taxpayers money using assets of Crane Bank, yet DFCU Bank is already enjoying profits from the acquision of Crane Bank. DFCU announced annual profits of Shs127b in 2017, a considerable portion of it attributed to Crane Bank acquision.
Analysts are asking how DFCU made all those profits from the acquision of Crane Bank which was deemed insolvent. DFCU will be asked the investments it made to reap the huge profits within that period especially in the first six months of 2017 when it reported net profit of Shs115b. Yet it attributed the huge profits to Crane Bank acquisition.
That is one of the reasons why the Auditor General wants to carry out investigations into the activities of BOU. The statements by Mutebile and Kasekende are not convincing. Parliament is also interested in the operations of BOU. “That simply means something is wrong much as Mutebile and Kasekende want the public to believe all is fine at the BOU,” says another local financial analyst who once worked with the BOU.
Despite the scandal, BOU top officials are stuck to the argument that their role is to foster price stability and a sound financial system. Yet analysts say that in performing that role, they have unfairly hurt some players in the industry-consider the Crane Bank case.
Mutebile and Kasekende say that the resolution of Crane Bank was successful, maybe on their side, but analysts say it was a blunder they are now regretting. Already they have spent hundreds of millions of taxpayers’ money on legal fees and BOU is not sure it will win the impending legal battle in court with Crane Bank shareholders who say despite the challenges they faced, they were working to recapitalize the bank, more so the process to recover loans worth billions of shillings.
DFCU is partly owned by the Commonwealth Development Corporation (CDC) a British government-owned company, together with other foreign multinationals like Rabo Development from the Netherlands and NorFinance from Norway who are shareholders in Arise B.V together with Norfund, a Norwegian government owned Private Equity firm and FMO, the Dutch Development Bank.
Last year, a company called Arise BV was formed after the companies, Norfund, Norfinance FMO, and Rabobank, all of which had shares in different commercial banks in Sub Saharan Africa, transferred their shares to form one company, Arise BV.
DFCU Shareholding percentages
Arise BV 58.71 per cent
CDC Group of the United Kingdom 9.97 per cent
National Social Security Fund (Uganda) 7.69 per cent
Kimberlite Frontier Africa Naster Fund 6.15 per cent
2 undisclosed Institutional Investors 3.22 per cent
SSB-Conrad N. Hilton Foundation 0.98 per cent
Vanderbilt University 0.87 per cent
Blakeney Management 0.63 per cent
Retail investors 11.19 per cent
BoU staff retirement benefit scheme is 0.59 per cent