Dfcu’s demand of Shs47b from BoU turns two sides into foes over loss of Crane Bank leasehold properties

Sebalu & Lule Advocates are culpable for misadvising Dfcu bank on this issue

On January 25, 2017, the Bank of Uganda (BoU) in a hurry transferred assets of defunct Crane Bank Limited (CBL) to Dfcu bank at Shs200 billion. Before the sale, BoU had on October 20, 2016 closed CBL ostensibly for being undercapitalised.

The closure and sale of CBL prompted parliament to launch an investigation into BoU over the sale of seven defunct commercial banks, the process that exposed the weakness of BoU officials in handling official duties. MPs after the probe proposed sweeping changes at the central bank as a result.

That aside, the transaction between BoU and Dfcu is now business gone bad on many fronts but the recent one that is likely to cause the two sides to clash is the demand by Dfcu bank that BoU, the regulator of the banking industry, pays Shs47 billion to them after it came clear that they could not take over 48 freehold properties of Meera Investments Limited that had been leased to CBL at the time of the takeover.

It is interesting that both sides, despite having highly-paid internal and external legal consultants, could not see that the attachment of Meera Investment properties to the sale of CBL could be challenged in courts of law. Sebalu & Lule Advocates are culpable for misadvising Dfcu bank on this issue.

However, other legal minds in the country say the lawyers; especially the external consultants involved in that transaction knew it was problematic but were interested in reaping more money from Dfcu bank and BoU as both were excited about the juicy transaction. Unfortunately, Dfcu and BoU executives, who seemed to be friends, could not anticipate that the transaction could at one bring them into confrontation.

The reality now is that Dfcu bank needs Shs47 billion from BoU which seems to be out of cash, even though it is important to note   that the money BoU controls is taxpayers’ money. The taxpayers’ already lost Shs478 billion allegedly injected in CBL under receivership, even though BoU failed to account for all the money.

As taxpayers’ were made losses, on the other hand, Dfcu bank  posted Shs114 billion as net profit for the first half of 2017 up from Shs23 billion in the same period in the previous year. That profit was partly as a result of the acquisition of assets of CBL.

As Dfcu bank demands for Shs47 billion from BoU, it is only fair that the lender provides accurate figures of the net profit earned from acquiring assets and liabilities of CBL. Otherwise analysts believe it is unfair for BoU to pay that money, more especially that Dfcu did not pay any interest on Shs200 billion that was being paid in installments.

Dfcu’s Crane Bank take-over made it to become the second largest commercial bank in the country, with an asset base of Shs3.37 trillion, just behind the market leader Stanbic Bank that boasted of Shs3.73 trillion in assets then. It also at the same time saw an increase in the branch network from 45 to 66 branches countrywide.

“We believe that the acquisition which placed Dfcu bank amongst the top three banks in the market in terms of total assets puts the group firmly on the path to transforming from a niche bank to a universal bank,” the notice reads in part, “Overall we expect the transaction to result in enhanced value to our shareholders through superior financial performance,” Dfcu bank said in a financial statement released on August 15, 2017.

However, the latest development means Dfcu bank’s asset value has gone down given that they have given up on those wrongly acquired from CBL /Meera Investments Limited.

Surprisingly Dfcu bank is demanding Shs47 billion after losing the properties in question yet the bank had valued the same properties at Shs10 billion. Questions of transparency arise when the taxation regime comes in to take away what it belongs to the taxman. Meanwhile, the members of the public wait to see whether BoU will pay Dfcthe money.