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Did BoU illegally transfer Crane Bank’s bad loans to dfcu?

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BoU’s Deputy Governor (L) and former Executive Director Supervision, Mrs Justine Bagyenda (C), the key players in the resolution of the defunct banks. Did Mutebile fail to exercise enough oversight over the duo?

The revelation by the Auditor General and corroborated by an interview with the former Executive Director Supervision (EDS) Mrs. Bagyenda, that Bank of Uganda did not carry out an independent valuation of the assets and liabilities of Crane Bank but instead “relied on the inventory report and due diligence undertaken by dfcu” to arrive at the final value and thus price of Crane Bank, has cast further controversy in the already controversial sale of one of Uganda’s largest banks.

In his report to Parliament, the Auditor General reported that before selling off the numerous banks, BoU did not carry out an independent valuation of the assets and liabilities of those banks as required by Section 95 (2) (a) and (b); and 95 (3)(a) and (b) of the Financial Institutions Act. In the case of Crane Bank, he reported that BoU had only relied on a valuation and due-diligence done by the ultimate buyer- dfcu bank!

In the absence of valuations, proper guidelines for disposing of banks and vital documents, the AG noted that it was difficult for him to ascertain if the prices BoU sold the assets of the respective banks, reflected the proper value.

In one such case, BoU sold Shs164bn worth of failed banks’ assets; some of which were collateralized at an 80% discount without due process causing huge losses to the tax payer. In the case of Crane Bank, the AG said he “could not establish how the consideration of Shs200bn was derived from a bad book of Shs570.38bn.”

This curious case of where dfcu was the bidder, the valuer and the eventual buyer, has been compounded by Bank of Uganda’s failure and or refusal to provide the Auditor General with vital transaction documents such as negotiation meeting minutes and asset transfer schedules, leading the Auditor General to cast doubt on how the actual price of Crane Bank was reached at.

 

Who actually owns the Crane Bank bad loan book and how much was it?

Another major contest, especially between BoU, dfcu Bank and Crane Bank Shareholders, is who actually owns the Shs570.3 billion bad loan book which the Central Bank secretly gave away to dfcu yet Crane Bank shareholders are laying claim to this since they had been made pay for these bad loans by forfeiting their shareholder capital worth Shs350 billion as well as an additional $23.5 (Shs85 billion) paid in cash to the Central Bank.

The shareholders of Crane Bank contend that BoU illegally transferred the bad loan book to dfcu and that dfcu is wrongly correcting on it since it was never part of the Purchase & Assumption agreement of Crane Bank’s assets and liabilities.

This curious case of where dfcu was the bidder, the valuer and the eventual buyer, has been compounded by Bank of Uganda’s failure and or refusal to provide the Auditor General with vital transaction documents such as negotiation meeting minutes and asset transfer schedules, leading the Auditor General to cast doubt on how the actual price of Crane Bank was reached at.

“Unlike in past transactions of other troubled banks where bad books were only transferred under formal written agreements and independently of the main sale agreements, in the case of Crane Bank, the P & A agreement is mysteriously silent on the issue of the bad books! BOU later transferred the bad book without any valuation and any clear records, to the chagrin of the Auditor General and Crane Bank shareholders,” said a source familiar with the deal.

The Auditor General in his report, singled out this anomaly, and observed: “I also noted that the P & A did not have complete details of assets and liabilities transferred to dfcu with their corresponding values; l was therefore unable to establish the status of assets and liabilities transferred to dfcu.”

He also said that in the absence of sufficient proof it was difficult to prove if actually the said bad loans were actually bad loans or not.

“I was also not provided with the schedule of loans and the corresponding collateral transferred to dfcu. Therefore, I was not able to establish the values and categories of loans- performing loans, non-performing loans and fully provisioned/written off loans (bad book), ” said Mr. John F.S Muwanga.

MPs to grill BoU over reckless sale of defunct banks

These and other AG findings that BoU, hurriedly sold off Crane Bank at a contentious Shs200bn, payable over a period of 30 months without interest, thereby causing taxpayers a loss of UGX39.5 billion, has riled a cross section of MPs who now want the responsible BoU officials summoned.

Speaking to Daily Monitor, yesterday, Hon Wilfred Niwagaba, the Shadow Attorney General and MP Ndorwa East said that the report, “exposed the rot at BoU” and the several missing documents mentioned in the report “are part of that rot.”

“Unlike in past transactions of other troubled banks where bad books were only transferred under formal written agreements and independently of the main sale agreements, in the case of Crane Bank, the P & A agreement is mysteriously silent on the issue of the bad books! BOU later transferred the bad book without any valuation and any clear records, to the chagrin of the Auditor General and Crane Bank shareholders,” said a source familiar with the deal.

“But the good news the AG report was sent to Cosase and BoU officials will be summoned to explain,” he is quoted as having said.

An angry Simon Oyet, the MP for Nwoya County is also quoted by the Daily Monitor as baying for Bank of Uganda’s blood.

“How can BoU refuse to give AG documents? It means there is a problem….Cosase should investigate BoU officials. I suspect those documents are not missing, they just don’t want AG to see them. Those commercial banks collapsed because BoU slept on the job, they should have detected the problems. It means the supervision and inspection directorate is dead,” he said.

Geofrey Ekanya, the Ex Shadow Finance Minister said that he was not surprised that BoU hid the documents from the Auditor General because BoU had never wanted the audit in the first place.

“The actions of BoU are illegal and unconstitutional because the AG audits on behalf of Parliament. The AG should stop lamenting and invoke the powers we gave him in the Audit Act,” said Ekanya.

Who at BoU is to blame for the mess?

The report was sent to the Speakers office on 27th August, and it not clear when parliament’s Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) which ordered for the audit will start summoning witnesses.

Although the Auditor General’s report did not directly hold any BoU officials culpable, Mrs. Justine Bagyenda, the former Executive Director Supervision under whose docket bank supervision fell and during whose reign most of the banks were closed is mentioned several times.

Her subsequent sacking following the full unveiling of the Crane Bank scandal as well as her enormous unexplained riches that came to light recently, could be an indicator of where investigators are likely to be looking.

It shall be recalled that in an August 1, 2017 interview with Daily Monitor, BoU Governor, Prof Mutebile denied direct responsibility, but instead pointed fingers at Bagyenda as being responsible for this mess.

“It was Bank of Uganda staff but not the entire BoU. BoU has an executive director in charge of supervision,” he told Daily Monitor’s Ivan Okuda adding that, while he was responsible for what went wrong as the Governor, he was not “not criminally culpable.”

Asked who was criminally culpable, he said: “Ask the executive director for Supervision [Ms Justine Bagyenda].”

Bagyenda is already subject to a joint inquiry by the IGG and the Financial Intelligence Authority over alleged unexplainable wealth and possible money laundering and has since been relieved of her role at BoU by Mutebile.

Although the BoU Deputy Governor, Dr. Louis Kasekende is not mentioned in the report, his name has come up in a Federal Bureau of Investigation (FBI) probe as having been involved in a plot, together with an unnamed BoU official and Mrs. Edith Kutesa (wife of powerful Foreign Affairs Minister, Hon Sam Kutesa) to secretly sell off Crane Bank, weeks before it was taken over by BoU, to CEFC China Energy Company a Chinese conglomerate.

Both Kasekende and Bagyenda have never come out to publicly comment about their respective individual roles and all inquiries to Bank of Uganda remain unanswered.

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