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Could closure of Mercantile Credit Bank also haunt BoU like Crane Bank Limited and others did?

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The Bank of Uganda (BoU) yesterday issued a public notice indicating it had revoked the licence of Mercantile Credit Bank Limited effective June 18, 2024, again sending shock waves in the local banking industry.  This is after BoU closed EFC Uganda Limited also recently.

Like previous banks which were closed by BoU, the central bank claimed the closure of Mercantile Credit Bank, and EFC Uganda was a result of undercapitalisation and poor corporate governance and needed to save depositors’ savings. However, the public has yet to hear from the latest closed financial institutions their side of the story.

The BoU, during the period 1993 to October 2016 closed seven commercial banks including Teefe Trust Bank, International Credit Bank, Cooperative Bank, Greenland Bank, Global Trust Bank, National Bank of Commerce, and Crane Bank Limited (CBL), claiming that all these were undercapitalised and had exhibited poor corporate governance.

After the closure of these banks, numerous complaints from the shareholders would force Parliament, through its Committee on Commission and State Enterprises (COSASE) during the speakership Rebecca Kadaga, to ask the Auditor General to undertake a special audit on the closure of the seven banks by BoU.

The Auditor General John Stephen Muwanga would carry out his work as assigned by Parliament, and in his Special Audit Report of the Auditor General on Defunct Banks, BoU was exposed for having flouted guidelines and processes established to close any bank. In particular, issues of corruption, abuse of the laws, abuse of office, carelessness, poor record keeping were unearthed by the Auditor General, putting the central bank’s image to shame.

From the Auditor General’s findings, what BoU will never forget is the closure and sale of Crance Bank Limited (CBL) on January 25, 2017 to its rival DFC, in a Shs200 billion deal, or scam, given that they invited DFCU to buy CBL, which was against the law? Here BoU officials were so careless that they would hand over properties of a different company, from which CBL was renting to operate its branches, to DFCU. Moreso, BoU in the process of selling CBL, claimed it spent over Shs478 billion of taxpayers’ money as liquidity support to CBL which was in receivership but could not account for most of the money, according to the Auditor General.

CBL still fighting

Despite not accounting for the above funds BoU would drag shareholders of CBL, including Sudhir Ruparelia, Chairman of Ruparelia Group of Companies, demanding for Shs397 billion it claimed was siphoned from CBL by the defendants. The case has never succeeded, as Sudhir keeps on fighting to have his bank back.  For instance, CBL has dragged DFCU to UK High Court has been battling to recover more than $220 million from what it says was an illegal sale and transfer of its assets and liabilities to DFCU.

Invesitgations by the Auditor General revealed the CBL, National Bank of Commerce, and Global Trust Bank Uganda, were closed unfairly as the shareholders were ready to recapitalise them, with CBL needing only Shs50 billion, yet when DFCU acquired it through fraud, DFCU made huge profits of Shs114 billion in the first half of 2017, attributing the profits to the acquisition of CBL whose assets were not even evaluated by BoU but by DFCU.

The mess of closing and winding up the sale of CBL, has been a thorn in the BoU, as its officials mismanaged Shs478 billion, with more money being paid to private lawyers in the fight against CBL. However, BoU abused public money here, as they failed to account for it, and in the next financial year national budget, government is to give BoU over Shs600 billion in the guise of its recapitalisation.

National Bank of Commerce still fighting

The National Bank of Commerce shareholders up to date maintain that their bank was unfairly closed and sold in one day (September 27, 2012) without any inventory report and want to be compensated. The Shs603 billion for recapitalisation in the next budget could help BoU clean its mess created by the haphazard closure and liquidation of the banks while those who stole billions of shillings enjoy life in their bungalows. Remember the same BoU officials also closed Global Trust Bank and sold it one day!

Who remembers former BoU bosses in bank closure debacle?

Who remembers former Deputy BoU Governor Dr Louis Kasekende, former Executive Director of Bank Supervision Justine Bagyenda, and Director of Banking Ben Sekabira. According to the late BoU Governor Emmanuel Tumusiime Mutebile, the trio did close and sale some of the banks without his knowledge, or never updated him on transactions.

Do you remember that Bank of Uganda officials failed to explain to COSASE during the probe how they came to sell loans of three defunct banks at 93 percent discount to Nile River Acquisition Company (NRAC) registered in Mauritius, a tax haven? David Opio Okello who once served at BoU as Executive Director Supervision and Acting deputy governor could not explain the role of M/S J.N. Kirkland & Associates which was contracted to identify a buyer of loans of Greenland Bank, Cooperative Bank and International Credit Bank.

COSASE advise to weak BoU management

The Abdu Katuntu COSASE in its report on closed banks advised that resolving financial institutions in distress should be independent of the supervision of BoU to avoid conflict of interest.

The COSASE report stated: “Whereas the resolution of financial institutions in distress has been under the BoU supervision department, it recommended that the mandate of resolving financial institutions in distress be independent of the bank supervision function. This would mitigate the risk of conflict of interest. Hope this is possible with the closure of Mercantile Credit Bank Limited, which in one way or another may haunt BoU, like the former banks, CBL, and others that were closed carelessly.

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