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Commercial Justice

Audit on BoU’s closure of banks starts, after Kadaga’s sting



After eight months of legal ping-pong, Bank of Uganda has given in to being audited by the Auditor General over the way in which various defunct banks were taken over and subsequently sold and or dissolved.

According to our sources at both the Office of the Auditor General and Bank of Uganda, a team of over 10 auditors descended on Bank of Uganda today morning and are expected to be holed at the Central Bank for the next days, trying to unearth details regarding the closures of Teefe Bank, Greenland Bank, International Credit Bank, Cooperative Bank, National Bank of Commerce, Global Trust and Crane Bank.

TRIUMPH: It had to take the strong opinion of the Speaker of Parliament to get the audit started

This follows a sharp letter by the Speaker of Parliament, Rt. Hon Rebecca Alitwala Kadaga to the Auditor General in which she dismissed sub judice grounds, previously pleaded by Bank of Uganda Governor and Deputy Governor, with support from the Solicitor General.

Kadaga, in her 10th May 2018 letter said that BoU, like every other public institution created by the law in Uganda  is subject to audit and ordered the Auditor General that: “Therefore in response to your request for guidance, you should proceed with the audit as directed and submit your report to my office as is required by law.”

Following Kadaga’s letter, the Auditor General, Mr John F.S Muwanga on 15th May 2018, wrote to the Governor infoming him that following the clarification by the Speaker, the hitherto stalled audit would resume.

“I have received the clarification from the Rt. Hon Speaker in a letter ref AP116/161/01 dated 10th May 2018 and copied to you guiding me to proceed with the audit and submit the report to Parliament as required by law. In view of the above, this is therefore to inform you that the team will be resuming the exercise commencing on Thursday 17th May 2018,” he wrote, adding: “As previously done, please provide the team with the necessary cooperation.”

Among others, the auditors will be seeking to establish the status on banks at closure, the cost of the liquidation exercise as well as assets and liabilities of the said banks at closure and current status. The auditors will also be looking to establish the scale of the non-performing assets, non-recoverable assets at closure and who is recovering.

The curious case of Crane Bank

Of particular interest will be the recent closure and subsequent sale of Crane Bank to dfcu Bank for Shs200 billion, a transaction the bank’s shareholders say grossly underpriced the value of the bank which had over Shs1.3 trillion assets at closure.

The shareholders also want to know why some assets were deliberately under-valued during the sale of Crane Bank and once they were in Dfcu’s hands, their value immediately appreciated.

For example, the shareholders claim that at the time of takeover by Dfcu, the branch network valued at only Shs10 billion but “within just days of taking over the assets, Dfcu revalued the same at Shs47 billion; showing an overnight discrepancy of Shs37 billion given to Dfcu.

Crane Bank’s shareholders are also riled that in the run-up to the sale of Crane Bank, BoU classified a set of Shs600 billion as bad loans and removed them from the list of Crane Bank assets to be sold.

BoU then made the shareholders of Crane Bank to pay for these loans out of their share capital and as a result of this transaction, the shareholders lost capital worth Shs350 billion  (as payment for these loans). In addition the shareholders subsequently paid to BoU an additional amount of $23.5 (Shs85 billion) to make for some of these bad loans.

By this arrangement, these non-performing loans were no longer the property of the property of Crane Bank (in receivership), but belonged to the shareholders who had paid for them with their capital contributions yet the non-performing loan book (which was not an asset on Crane Bank’s balance sheet) was also secretly transferred to Dfcu in this transaction.