Auditor General asks BoU to explain why Crane Bank & others were sold on the Cheap

Uganda’s Auditor general also called Comptroller General is a Senior Civil Servant charged with improving government accountability by auditing and reporting on the government body operations. He has queried the fact that Bank of Uganda (BoU) has habitually been selling off closed banks cheaply, causing losses to shareholders and the liquidator itself.

Parliament recently directed AG to undertake a special audit on the closure of commercial banks by BoU.

The affected banks are Teefe which was closed in 1993 for insolvency; International Bank, Credit Bank, Greenland Bank, Cooperative Bank, National Bank of Commerce, Global Trust Bank and Crane Bank.

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Parliament specifically requested the AG to provide assurance on status of banks at closure, cost of liquidation, assets and liabilities of the banks at closure and current status; non-performing assets, non-recoverable assets and liquidators.

The AG reported that BoU didn’t provide documentation on closure on Teefe Bank, Crane Bank and NBC.

But in his review of the documents on other banks, the AG observed that loans were sold at a much lower price.

In the case of GTB, the AG said “there were no guidelines/regulation or policies in place to guide the identification of the purchasers of defunct banks.”

He emphasized that, “In the absence of guidelines of the sale of banks, there is a risk that bank assets may be sold at a loss arising from conflict of interest between BOU staff and the potential buyers.”

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For example, in December 2007, BoU signed an agreement with Nile River Acquisition Company to sell the debt portfolio of Greenland Bank, ICB and Cooperative Bank at $5.2m (Shs8bn).

The debt portfolio comprised secured, poorly secured and unsecured loans amounting to Shs135bn.

The AG discovered that loans worth Shs 135bn were sold to Nile River at a paltry Shs8bn “resulting in a variance of Shs126bn.”

“I was not able to establish whether this sale option was the best option available for the BOU to realise the maximum amount possible from the sale of the assets in line with section 33(5}(d) of FIS 1993,” the AG added.

This development comes in the wake of former Crane Bank shareholders’ outcry that their bank was sold for peanuts.

They argued that CBL’s total assets worth Shs1.3 trillion were sold for Shs 200bn.

 

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Deputy Governor Louis Kasekende has since defended the contested transaction, saying, “When Crane Bank was resolved by the BoU, the value of its assets was much less than the value of its liabilities. Consequently, Crane Bank had a negative net worth of approximately Shs.260bn; it was insolvent.”

He added: “BoU did not sell Crane Bank, because no one would have bought a bank with a negative net worth of this magnitude. Instead the BoU carried out a purchase of assets and assumption of liabilities transaction (P&A) with DFCU. DFCU assumed most of the liabilities of Crane Bank, including all of its deposits and acquired assets of equivalent value. The remaining assets and liabilities not transferred to DFCU have been put into the liquidation process”.

But the AG in his draft report says Management “should explain the delay and provide criteria used to sell the loans at 7% of the total loan value and 26% of the secured loans” of defunct banks.

Contacted for comment on the AG’s draft report, BoU Communications Director Charity Mugumya responded: “The Audit of the closed banks is ongoing and accordingly, BoU is presently unable to comment on the Interim Report.”

Nevertheless, the AG said the Central Bank Management “should in future ensure that assets of the banks are recovered/ sold at an appropriate time in order to maximise the recovery amount of the assets.”

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