When the Bank of Uganda (BoU) started closing commercial banks right from 1993 on account of insolvency, the officials there did not at any one time anticipate they would face a parliamentary probe for their actions, for they thought the central bank was independent and could do its business causally without following the established laws and procedures.
That long-held view by the BoU senior staff was to change when some of the owners of the closed banks started complaining of the unfair closure of their branches, even as they pleaded that they be given second chance. Particularly the sale of Crane Bank (CBL)in January 2017 put BoU in disrepute to the extent that parliament ordered the Auditor General John Muwanga to carry out a special audit on the closure of seven banks by BoU. BoU would later resist Muwanga’s probe but later gave in after failing to garner support from the executive.
Muwanga’s well written audit report formed the basis on which the Parliamentary Committee on Commissions, State Authorities and State Enterprises (COSASE) are probing BoU senior staff as the MPs seek answers to the queries raised in the report. The report was published on August 27, 2018 and handed over to the Speaker of Parliament Rebecca Kadaga.
Mr. Muwanga’s report on closure of banks and COSASE’s inquiry have been commended by the members of the public who have been watching the proceedings live on television. The inquiry has exposed BoU as an institution that doesn’t follow its own procedures. It exposed BoU staff as disorgainsed, uncoordinated, negligent, careless and not suitable to hold those jobs, despite having the qualifications. For instance, the inquiry exposed director legal department, Margaret Kasule, as wanting as she could not appropriately respond to questions relating to closure and sale of banks.
The inquiry further has exposed BoU staff as exhibiting corruption tendencies as well as allowing conflict of interest in the transaction. For instance the inquiry established that BoU sold Global Trust Bank Uganda (GTBU) and CBL to Dfcu Bank well knowing that BoU Staff retirement benefit scheme owns 0.59 shares in Dfcu Bank and as such stood to benefit from the two transactions. The MPs in the probe have established that that was foul play, which was accepted by BoU Governor Emmanuel Tumusiime-Mutebile.
Further, the probe has exposed BoU in the conflict of interest scenario. For instance, Dr. William Kalema was both on the boards of BoU and DFCU Bank when the latter bought GTBU. That is the reason why MPs on COSASE dismissed him from appearing alongside BoU staff in the inquiry. BoU has conceded defeat on this, saying it will never happen again, but the damage is already done.
BoU has been further exposed in that it did business with law firms whose directors represent the banks the central banks is supposed to regulate. For instance some of the MMAKS Advocates counsels are directors in some commercial banks. Sebalu & Lule Advocates have had business with BoU, the latter well knowing they did the same with CBL. That raises a question whether BoU can effectively do its regulatory work in such a scenario. The same layers at one time worked for CBL.
The inquiry has still exposed BoU as an institution a careless officials. For instance the Auditor General hired KPMG to produce a financial status report of CBL under receivership but responsible BoU officials did not sign on the report, leaving it hanging. The BoU staff were exposed as careless as they claimed to have spent Shs478.8 billion on CBL in liquidity support yet they cannot account for the money. Interestingly to show their carelessness they sold CBL at Shs200 billion, paid in installments. That is worsened that the bank doesn’t have all documents related to the transaction as they sold banks.
Mutebile recently accepted the faults committed by BoU as it closed banks. “I would like to thank you in particular, for your candid approach to tackling issues that you believe needed to have been addressed, or at least taken into consideration by the staff of the Bank of Uganda. I also would like to express my appreciation to the Auditor General for his report which raised issues that will culminate in an improvement in the operations of Bank of Uganda,” he told MPs on COSASE.
“The Bank of Uganda acknowledges the relevance of this exercise and we are confident that it will enhance transparency and accountability, which are key values that the Bank upholds. This interaction has highlighted the shortfalls within our processes, policies and practices,” he said, adding that the MPs probe had been a learning process not only for the Management but also for the staff. “I am confident that resulting from this process, we will review ourselves, the Banks processes and policies in order to strengthen our capacity to perform the functions of the Central Bank better,” he said.
He said it would be incumbent upon BoU to put in place measures that translate into a stronger institution and visibly boost the confidence of the public in the central Bank. “We want to see a stronger financial sector and economy built on the confidence that the public has in us,” he said.