A Special Audit Report of Bank of Uganda (BoU) on seven defunct banks compiled by the Auditor General (AG) John Muwanga, has disclosed that dfcu Bank has so far only paid Shs98.3 billion to BoU out of the Shs200 billion agreed in the Purchase and Assumption (P&A) agreement reached in January, 2017 as the commercial bank controversially acquired its competitor Crane Bank Limited (CBL).
It should be remembered that slightly more than a year after taking over Crane Bank, dfcu Bank would report a huge profit of Shs127.6 billion in the year ended on December 31, 2017, increasing its profit margin by Shs 81 billion from the previous year when it earned only Shs 46 billion. Dfcu Bank at the time attributed the sharp rise in profits partly to the acquisition of some of Crane Bank’s assets and liabilities.
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Special Audit Report of Bank of Uganda on Defunct Banks_2018-09-12-11-57-47 AM
According to the report now before parliament awaiting debate, under the P&A signed between BoU and DFCU, all loans and advances of CBL were transferred to dfcu except the insider loans. At the time of the transaction, nonperforming loans (bad book) of CBL were worth Shs570.38 billion out of the gross loans of Shs1.159 billion.
The report says the bad loans were transferred to dfcu to provide a resource for repayment of the assumed liability of Shs200 billion and bridge the shareholder’s deficit of Shs.439.7 billion at the date of takeover.
However the AG wonders how Dfcu Bank and BoU reached the Shs200 billion price for the sale of CBL. “I could not establish how the consideration of Shs200 billion was derived from the bad book of Shs570.38 billion. Dfcu has so far paid Shs98.3 billion of the Shs200 billion liability,” Muwanga says in the report.
In the report, the AG Further, he was not provided with the schedule of loans and the corresponding collateral transferred to Dfcu. “As such I was unable to establish the values and categories of loans transferred (performing loans, non-performing loans and fully provisioned/written off loans (bad book)),” he says.
Statutory management of CBL
The AG in his report says that despite the existence of the option to revive CBL, the bank was placed under statutory management by BoU from 20th October 2016 to 20th January 2017 and BoU failed to prepare any plan detailing efforts to return CBL into compliance to standards. “During this period the Statutory manager did not prepare a plan detailing efforts to return the bank into compliance with prudential standards despite BoU injecting Shs478.8 billion to support the operations of CBL,” he says.
“In absence of any documented assessment to revive the bank, I could not provide assurance as to whether Sections 89(5) and 90(a) (c) of the FIA 2004 was complied with,” he adds.
Preparation of CBL financial statements
The report says the Statutory Manager (BoU) prepared CBL annual report and financial statements for the year ended 31’t December 2016 though it says the statements were neither signed by BoU nor the Auditors. Furthermore, the statutory manager did not provide financial statements for the period January 2017 to 25th January 2017 (P&A completion date). I was therefore unable to ascertain the financial performance of CBL during statutory management and its financial position as at 25th January 2017. As such, I was also unable to establish the details and values of assets and liabilities transferred to Dfcu Bank.
Eagle Online previously reported leaked agreement between Bank of Uganda and Dfcu that indicated the external owned bank got Crane Bank with assets valued at Shs1.3 trillion for just Shs200 billion (payment for liabilities).
The Agreement did not state the amounts of money paid by Dfcu as a net purchase price; or the payment terms for monies, or the assets (outside branches) that Dfcu was taking over.
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