The Central Bank last week took over the management of the third biggest bank in the country, Crane Bank, saying it poses a systemic risk to the stability of the financial system and that the continuation of Crane Bank’s activities in its current form is detrimental to the interests of its depositors.
However, sources in Crane Bank intimated to the EagleOnline that some ‘unscrupulous individuals’ within the Central Bank frustrated its efforts by rejecting all partners introduced to them.
“Crane Bank has been hunting for a partner to inject in more money in the bank which has diligently served Ugandans,” a source in Crane Bank said, adding that efforts to find an investor to recapitalize the bank were further dealt a big blow when Bank of Uganda took over the management of the commercial bank, citing lack of the requisite capital.
Under the country’s laws managing the banking sector, Bank of Uganda which regulates the sector must approve any person willing to buy into any operating bank.
“What Bank of Uganda is doing is not good for the banking sector in Uganda and Ugandans should worry. Every investor the bank presented to the Central Bank was not approved even when they were all good bankers managing renowned banks,” a source at Crane Bank said.
“Such a move as displayed by Bank of Uganda will create liquidity in the banking sector. People will not trust banks anymore,” the source added.
And some economists agree. According to Dr. Fred Muhumuza, a lecturer of economics at Makarere University, Crane Bank’s woes are a sign of a bigger economic problem.
While addressing media, he explained that it was wrong to borrow from commercial banks and invest in the construction of long term infrastructure projects like roads and power dams which do not yield quick returns.
He added that government must strike a balance between public investment and survival of the public sector.
“Mutebile said Crane Bank poses a systemic risk to the stability of the financial system and that the continuation of Crane Bank’s activities in its current form is detrimental to the interests of its depositors. While this could be true and the Central Bank acted in good faith, it risks causing panic within a young and fragile banking industry in the country. Less than 10 percent of Ugandans don’t use banks. Therefore, taking down banks in a manner BoU did is a disservice to the industry and in long run risks causing a liquidity crisis.”
Crane Bank is the third largest bank in the country with a reported capitalization of about Ushs1.3trillion.
By press time it was not possible to get comment from the BoU.
