Report pins BoU for selling defunct banks’ loans at 93% discount

As Bank of Uganda liquidated and sold International Credit Bank (ICB), Greenland Bank and Cooperative Bank, it would also go ahead to sell loans worth Shs135 billion, including secured loans worth Shs34.5 billion, at a discount of an amazing 93 per cent.

That transaction was revealed by the Auditor General’s (AG) recent confidential report of BOU on seven defunct commercial banks.

“In the case of ICB, Greenland Bank and Cooperative Bank the total loan portfolio sold of Shs135 billion included Secured loans of Shs34.5 billion which had valid, legal or equitable mortgage on the real property and were supported with legal documentation but were sold to Nile River Acquisition Company at a 93 per cent discount,” the AG John Muwanga said in the report he did at the request of parliament.

Members of Parliament requested the audit of BoU in the sale of defunct banks following public outcry against BoU’s sale of banks without proper due process and the Auditor’s finding in the report will form part of grounds MPs will stand on to further question BoU top managers who spearheaded the sale of the banks.

Refund of contributions made towards settling customer claims

According to the report, a sum of Shs96.431 billion was contributed by the Deposit Protection Fund (DPF), Government of Uganda and BOU towards settling the insured and uninsured depositors of Cooperative bank, ICB and Greenland bank and was to be refunded following the sale of assets of the closed banks. However, the report by the AG noted that only Shs28. 055 billion was refunded by the liquidator (BoU) leaving a balance of Shs68.376 billion.

Government is unlikely to recover the outstanding balance since only Shs19.7 billion has been set aside to clear the outstanding claim pending conclusion of the liquidation exercise. This, according to sources, is a loss to the taxpayers if no recoveries are made.

Further the report accuses BoU of misstating liabilities of Greenland Bank, Cooperative Bank and International Credit Bank (ICB), saying the three banks owe DPF even BOU included the figures in the financial statements. “I further noted that although the Statements of affairs of the three (…) closed banks as at 30th June 2015 indicated that the banks owed Shs.14.89 billion to the DPF …, the DPF financial statements for the financial years ended 31st December 2009, 2010, 2012 and 30th June 2017 indicated that the three (…) closed banks did not owe the DPF hence the liabilities are misstated.,” the report says.

Liquidation costs not clear

The report says the recovery account provided by BoU did not have a clear description of transactions relating to liquidation costs reported in the Statements of affairs as at 30th June 2016.

According to the statement ICB has an outstanding liquidation costs of about Shs70.3 million while Cooperative Bank has Shs115.3 million. On the other hand Greenland had no outstanding liquidation costs, having paid about Shs8.2 billion.

Global Trust Bank

Global Trust Bank (GTBU) was closed on 25th July 2014 due to undercapitalization and Corporate Governance weaknesses among other reasons. BoU and Dfcu would later arrange the purchase of assets and assumption of all or some of the liabilities of GTBU, with Dfcu taking 65 percent and BoU withholding 35 percent of the liabilities. Total assets and liabilities transferred from GTBU s were about Shs71 billion.

However, the AG’s report notes that the transaction was messy as guidelines were not followed. I observed that there were no guidelines/regulations or policies in place to guide the identification of the purchasers of GTBU. There were also no guidelines to determine the procedures to be adopted by the Central Bank in the sale of assets and transfer of assets or liabilities of the defunct banks to Dfcu.

The AG Muwanga furthers says in the report that he was not provided with records of the procurement process to ascertain the bid requirements, offers made, list of bidders, evaluation criteria, evaluation report and negotiation minutes leading to the P&A agreement.

“In the absence of guidelines and procurement records, I could not ascertain whether BoU selected and evaluated the bids in line with the evaluation criteria,” he says.