On April 06th 2-18, Bank of Uganda Governor, Dr Louis Kasekende, spoke out, for the first time in a long time about the sale, by Bank of Uganda of Crane Bank to dfcu for what many believe to have been a fraction of its real value.
This sale and many other issues surrounding it are subject to a court process and will certainly be a story for another, day but I wish to address myself to the other comments that Kasekende made about Crane Bank and the banking industry in general.
While speaking at a dinner to mark the 20-year anniversary dinner for the Uganda Securities Exchange (USE) Kasekende said, the insolvency of Crane Bank was “not caused by any problems in the wider economy; it was caused by its own mismanagement, not least by its extensive insider lending.”
He went on to say, that with Crane Bank closed, the financial soundness of the banking system was now stronger as exhibited, partly by the fall in the non-performing loans to total loan ratio; from 10.5% in 2016 to 5.6% at end of 2017.
“The successful resolution of Crane Bank in January of 2017 was the main reason for the improvement in financial soundness indicators of the banking system,” Kasekende concluded adding that an 18% growth in customer deposits between 2016 and 2017 was an indicator that “public confidence in the soundness of the banking system remains very solid and has not been impaired by the failure of Crane Bank.”
Head-in-the-sand economics and selective amnesia
I find Kasekende’s assurances rather cosmetic.
He has either deliberately forgotten too much too soon or is practicing head-in-the-sand economics.
For example, in his 5-page speech, three of which are dedicated to chest thumping about BoU’s sale of Crane Bank, Kasekende deliberately chooses which facts to tell the country. He cleverly avoids mentioning the fact that over the last 2-3 years, private sector credit, which is the engine of growth has virtually stalled.
Matter of fact, according to a BoU report, private sector credit between January 2017 and January 2018, only grew by 6% from Shs12.96 trillion to Shs12.65 trillion. The year before that it grew only by 5% from Shs11.43 trillion yet, 2 years before that it grew by 14% and 17% respectively.
To measure this, we look at the gross loans to total deposit ratios of Stanbic Bank and dfcu bank, two of some of Uganda’s largest lenders. This ratio measures what percentage of a bank’s deposits are actually being lent out for productive use. For Stanbic, this ratio has reduced from 82.7% in 2013 to 60.7% in 2017 while dfcu’s ratios have reduced from 88% to 67%.
So in effect, Kasekende’s famous 18% growth in deposits has not resulted in commensurate increase in lending. In anycase, there is no evidence to show these deposits are from productive sectors in the economy.
I also find Kasekende’s sweeping statement that the problems of Crane Bank were not caused by any problems in the wider economy but rather by its own mismanagement, flippant and calculated to mask the mismanagement of our economy by people hired to manage it, such as himself.
In this I agree with senior economist Dr. Fred Muhumuza that Non-Performing Loans are largely a factor of weaknesses in the economy, rather than failures within a banking system.
While speaking at a recent symposium themed: “The economy we want”, organized by The Uganda We Want, a Kampala Think Tank, Dr. Muhumuza who at one time served as Economic Advisor to the Finance Minister, said that the closure of banks weighed down by NPLs is not the magic bullet as Kasekende wants us to believe.
“True, Crane Bank owned half of the non-performing assets, but the other banks owned the other half and you cannot say the others (NPLs) were created because of the weaknesses in Crane Bank,” he said adding that, the NPL ratios appear to have come down simply because there were written-offs rather than due to an improved business environment.
“They (NPLs) have come down not because the businesses have recovered or businesses have bounced back- but because banks are required to write-off bad loans after a certain period…. in the actual sense, NPLs have continued to increase.”
Indeed even with Crane Bank out of the picture, at 6%, Non- performing Loans for 2017 are still very high- nearly 3 times higher than the pre-2008 financial crisis levels of 2.12%. For example, in the just released results, Stanbic Bank, the country’s biggest lender reported that NPLs have worsened from 1.5% in 2015 to 3.2% in 2016 and more than doubled in 2017 to above industry figures of 6.8%.
Ironically, Kasekende was speaking on the 20th anniversary of the Uganda Securities Exchange which for the last 5 years has not received a single IPO. In its 20 years of existence, USE has only had 8 companies locally listed. The other 11 companies that planned to list since 2009 such as Uganda Telecom, Lake Victoria Hotel, Crane Bank, Sheraton Hotel, Barclays Bank, Tororo Cement, Kakira Sugar, Kinyara Sugar and Uganda Grain Milling have either shunned the exchange because of illiquidity or gone insolvent- like in the case of Crane Bank and Uganda Grain Milling Company.
Rising poverty amidst rosy figures
Of course the Central Bank owes Crane Bank shareholders and Ugandan taxpayers why they sold a bank with Shs1.3 trillion in assets to dfcu for Shs200 billion, payable in 3 years but dfcu went on to make Shs260 billion on the deal in just 11 months. But that is a story for another day, because Kasekende’s justification that Crane Bank’s Non-Performing Loans (NPLs) – had eaten into its capital by Shs260 billion does not hold much water, since almost all the NPLs were collateralized.
Kasekende particularly has questions to answer given that he and an unnamed senior Bank of Uganda official (believed to be disgraced Mrs. Justine Bagyenda) have been named in a Federal Bureau of Investigation (FBI) probe as having been involved in a plot, together with Mrs. Edith Kutesa (wife of powerful Foreign Affairs Minister, Hon Sam Kutesa) to sell off Crane Bank, weeks before it was taken over by BoU, to CEFC China Energy Company a Chinese conglomerate.
That aside, Kasekende rosy picture of a 6.9 GDP growth in the last six months of 2017 sounds like a big joke if your consider the fact that despite having increased Uganda’s budgetary resources by 136.3% from UGX11.6 trillion in 2012/13 to UGX26.4 trillion in 2016/17, the number of poor people in Uganda instead increased by 51% from 6.7 million to 10.1 million people in the same period.
The proportion of people leaving below poverty line has grown to 27% from 19.7%; the poverty gap and severity too have worsened!
Instead of chest-thumping we should be having some resignations as a show of responsibility.
Does Kasekende whose lavish lifestyle is financed by taxpayers ever stop to remember that when he casually says: “the remaining assets and liabilities (of Crane Bank) not transferred to dfcu bank have been put into the liquidation process,” he is actually talking about job losses, business closures and destruction of Ugandan livelihoods?
New realities need new solutions and perhaps new people
We can have all the rosy figures that we want but the reality in people’s pockets are not all that rosy.
It is time to seriously look at the real issues affecting our economy and have them addressed before we have another major bank folding under the watch of the Kasekendes of this world.
For example, in a country where government owes Shs2.2 trillion to Ugandan business- but has only allocated Shs300 billion to settle the arrears, where does such a government get the guts to talk about Non-performing Loans?
Should we be talking about a non-performing government instead?
For example, in the case of Crane Bank some of its biggest debtors; Patrick Bitature and Amina Hersi Moghe are both owed money by the same Government that Kasekende works for.
Does someone see the irony in this?
Or perhaps, can Kasekende advise businesses how they are supposed to survive in an economy where the between 2012 and 2017, the shilling depreciated by 44.2% from Shs2,503 to Shs3611.4 at end of 2017?
Dr. Kasekende, the grave of Crane Bank is too fresh to dance on yet.