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Commercial Justice

EDITORIAL: Too much power in too few hands; BoU urgently needs overhauling



Last week, Bank of Uganda’s reputation hit a new low, following the release of a special audit report by the Auditor General into the Central Bank’s misconduct as it seized and wound up a total of 7 banks, between 1993-2017.

The report that was ordered by Parliament’s Committee on Commissions, Statutory Authorities and State Enterprises (COSASE), lifts the veil off the largely secretive BoU and for the first time, attempts to paint in detail how too much power, vested in the hands of a handful of individuals has allowed years of rot to go on unchecked. All the while, under the cover of “protecting depositors” the central bank according to the AG has gone on seizing and selling banks without proper valuation, proper negotiations and many times did not keep any  records of such multibillion transactions, a ploy believed to be a deliberate way to cover up for their crooked and dubious dealings.

Whereas the Financial Institutions Act (FIA) 2004 warrants that the Central Bank must protect the interests of all stakeholders, including depositors, bank shareholders and the entire public, the AG’s report shows how BoU officials cunningly hid under the veil of “we had to move very fast to protect depositors” to hurriedly dispose of troubled banks, as if they were selling a dead cow.

Whereas protecting depositors’ interests is a noble objective; who says to protect depositors, you must destroy shareholders of the troubled banks- to the extent that you sell their assets at over 80% discount or even wantonly and illegally ‘donate’ them to the acquiring banks?

The impunity at BoU needs to be checked

The Auditor General’s report faulted Bank of Uganda on several fronts, raising major questions regarding too much power being bestowed upon BoU; power they have evidently misused

One such clear case is how select BoU officials gave away Shs570.3 billion worth of Crane Bank’s bad loans to dfcu Bank, without any agreements, valuation and or any other proper records such as the schedule of loans as well as the corresponding collateral.

Just because they could; they are Bank of Uganda anyway!

First of all, ordinarily this bad loan book should largely belong to Crane Bank’s shareholders, who were made to forfeit their shareholder capital worth Shs350 billion as well as pay an additional $23.5 (Shs85 billion) paid in cash to the Central Bank, so as to plug the gap created by the bad loans. But the almighty, central bank officials, led by the once too powerful Mrs. Justine Bagyenda went on to assign this bad loan book to dfcu Bank, outside the official Purchase & Assumption agreement (P&A).

But that is not all, according to the AG, BoU officials did not have “the schedule of loans and the corresponding collateral transferred to dfcu”, thus making it difficult for the auditors to “establish the values and categories of loans transferred (performing loans, non-performing loans and fully provisioned/written off loans (bad book))”

All this is in direct contravention of the FIA; the same law that BoU has purported to act under and live by.

Section 95 (3) and (b) of the FIA underscores the importance of proper valuation, ensuring value for money for all involved stakeholders as well as keeping proper records of all transactions.

In the event of liquidation of a troubled financial institution, the FIA provides that: “In determining the amount of assets that is likely to be realized from the financial institutions assets, the receiver shall ; evaluate the alternatives on a present value basis, using a realistic discount rate or document the evaluation and the assumptions on which  document the evaluation and assumptions on which the evaluation is based including any assumptions with regard to interest rates, asset recovery rates, inflation, asset holding and other costs.”

That BoU did not evaluate the value of banks before selling them, keep and or provide the AG with valuable records such as asset schedules and negotiation minutes leading to the sale of the said banks etc., it becomes difficult to prove that there was value for money for all the involved parties. This in the face of the numerous unexplained riches of one of the BoU officials involved, could point to an even more disturbing agenda.

This is especially that for example in the case of Crane Bank, the value of bad loans has also changed several times. For example, as of October 2016, bad loans were said to be UGX328.3bn and then 2 months later in December 2016 bad loans went up by 48% to UGX485.1bn. One month later by the time dfcu took over; the bad book was said to have gone up by another 18% to UGX570.38bn!

With no records, why should anyone believe these figures? What if BoU officials, deliberatey and secretly over-inflated Crane Bank’s troubles, so as to cheaply sell off Crane Bank and then profiteer from this transaction through third parties such as transaction lawyers? Already, the AG has discovered that BoU in a period of just 3 months, spent Shs12 billion in professional fees and commissions on selling Crane Bank alone.

How come dfcu Bank was never investigated at least to get a proper idea of how much they got handed by Bank of Uganda? As a publicly listed Bank, largely owned by responsible shareholders such NSSF, Rabobabnk and NOrfund accept such shady dealings?

With the amount of rot uncovered at BoU; which I believe is just a tip of the iceberg and the obvious unwillingness by the key player to voluntarily comply with the Auditor General; what Ugandans need, is a court-sanctioned forensic audit with a view to apportion individual criminal culpability and prosecution for all those involved; be it BoU officials, the transaction lawyers and officials from the acquiring dfcu.

Otherwise, the full truth will never be known. This could easily be yet another big scandal entering the annals of our history.

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