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Impunity at Bank of Uganda

THE LAST WORD: How institutional independence allowed the central bank to indulge in gross mismanagement and incompetence

THE LAST WORD | ANDREW M. MWENDA | Last week was the most shameful for Bank of Uganda. During hearings before the parliamentary committee on Commissions, Statutory Authorities and State Enterprises (COSASE) it was exposed that BoU sold the assets and liabilities of the now defunct Crane Bank Limited (CBL) irregularly in blatant violation of the law.

First, a caveat: I am biased when it comes to issues of CBL. Its former owner, Sudhir Ruparelia, is my friend. I was a customer of CBL as were all businesses I am associated with. In this capacity, I experienced the high quality of service CBL extended to their customers and which was tailor-made to address the specific characteristics of our society. Therefore, my personal bias and interest should not blind the reader to the issues I raise.

BoU took over statutory management of CBL on October 20, 2016. It then, on November 30, 2016, entered an agreement with DFCU Bank to buy CBL’s assets and liabilities and gave DFCU unlimited access to CBL records.

Clearly BOU had no intention or desire whatsoever to stabilise CBL; its intention was to liquidate. On December 9, 2016, BOU asked DFCU to submit a bid to buy the assets and liabilities of CBL.

The first draft forensic audit report by PricewaterhouseCoopers (PWC) on CBL came out on January 13, 2017. So, essentially, BoU had invited DFCU to buy CBL assets and liabilities before it had an inventory of these assets and liabilities. How can you sell what you do not know? Secondly, BoU did all this without a forensic report showing the present value of the assets it was selling. Without a reserve price BoU simply asked DFCU to pay whatever it wished.

Now we must remember that the Financial Institutions Act (FIA), clearly states that: “In determining the amount of assets which is likely to be realised from the financial institutions assets, the receiver shall a) evaluate the alternatives on the present value basis, using a realistic discount rate; or b) 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.” BoU disregarded these provisions completely.

DFCU grossly undervalued CBL assets knowingly and paid peanuts. Hence, a month after buying them, it re-valued them at prices five times higher. For example, CBL had valued its branches at Shs90 billion. DFCU valued them at Shs10 billion and paid stamp duty at that price. It re-valued them at Shs48 billion immediately after. Is this not tax fraud?

Why did BOU act with such recklessness and DFCU accept to go along with this blatant violation of the law if the two were not colluding to defraud the shareholders of Crane Bank and the taxman? For two decades, BOU has adopted a policy where, whenever a commercial bank is in distress, their only solution is to liquidate. They make no consideration of any alternative; like how they can rescue a bank. Over the years, I have realised that this is a result of four factors in order of their importance: ideology, impunity, incompetence, and corruption.

Ideologically there is hostility to local ownership of banks. We assume that bankers do insider lending and other practices that undermine the viability of a bank. This bias is not pulled out of thin air. It is the response to this that matters. The lesson we get from such mistakes is criminal prosecution of the culprits, which silences them. BoU then hands over the local bank to those it wishes in sweetheart deals that suggest collusion between BoU and the buyers.

A business, like a person, grows from infancy to maturity. In infancy, it will make many mistakes and suffer the problems of incompetence, mismanagement, and even fraud. In practically every enterprise, these mistakes should be opportunities for learning, correcting mistakes, and improving on performance. Every person, organisation, business or country grows through such feats and starts.

The ideological problem in Uganda is that where local firms are involved, such mistakes become the excuse and the justification for shutting them down.

To kill a business because of these mistakes is like punishing a child of one year because it pees and plays in its own pee. This has led us to a situation where the commanding heights of our economy are owned by foreign firms. Ugandans only work in them as employees. Hence profit repatriation, transfer pricing and other illegal remittances by multinational firms are sucking the country dry.

BoU officials have defined their role narrowly i.e. to achieve financial stability. This is helped by the FIA. In pursuit of this narrow objective, BoU officials abuse their independence by acting with impunity, intimidating, and blackmailing owners of distressed banks with criminal prosecution to unfairly dispossess them. In cases involving local owners they had also jailed some of them. This suppressed any challenge to the criminal and fraudulent way BoU acts.

Previously no one questioned whether BoU followed the law or whether their claims against any given failing bank were true. Indeed, no one asked whether the only option available to the central bank was to liquidate a bank in distress. Because everyone respected their independence and believed they were doing the right thing, the people at BoU felt omnipotent. Thanks to Sudhir, he was the only dispossessed bank owner who decided to fight back; a factor that has exposed BoU incompetence, impunity, and criminality.

I personally experienced this impunity and blackmail. During a meeting to resolve the problems of CBL at the ministry of Finance, Justine Bagyenda, then Executive Director Bank Supervision, told me point blank: “we are the state and were going to destroy Sudhir and take all his property, including that private home he is very proud of if he does not play ball.” Today I feel proud that I live in a country with strong institutions to check this kind of impunity. As we know, it is BOU managers like Bagyenda not Sudhir, who are in the dock.

Here was the crisis at BoU: Bagyenda lacked basic intellectual ability to understand the macro economic challenges of Uganda, and how to resolve banks in distress with strategic foresight. This was compounded by that fact that, while intellectually astute, Deputy Governor Louis Kasekende approaches bank issues through highly technical and theoretical lenses. To make a bad situation worse, Governor Tumusiime Mutebile was too ill to add anything valuable.

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4 comments

  1. First and foremost, it is good that MWENDA for once, probably in response to what most of us pointed out previously, has pointed out his vested interest when penning this article.
    He rightly points out that the biggest yellow elephant in all these issues is CORRUPTION with its sibling BAD GOVERNANCE.
    MWENDA has told all who care to listen that corruption is not a bad thing, in fact that it is very good, until it happens where it affects his interests. You can not cherry pick when corruption is good and when it is bad. So, when corruption takes place where money meant for Kumi hospital is stolen and the thief builds a factory and 100 people die is good, but when BOU staff is corrupt and it leads to loss of business for a one M9 is bad.
    What is good for the goose……….. and you made your bed of thorns/ roses, lie in it and enjoy your beauty sleep

    • ‘What goes round comes round’…Sudhir swallowed NBC without chewing and went home laughing like a successful hunter panther……..The NBC sued and sued but lost the case…. Now Sudhir has been swallowed by DFCU and he cries foul……..why? At his age , he should swallow the loss; which is no loss at all because it was stolen accruals; and go on in some other venture, ahead of the other thieves……until they again catch up with him ad infinitum….. I have seen no good business practice in all these banks saga except one thing they all have in common; theft. Like they say in ‘Treasure Island”, rum and the devil will deal with the rest…………..when it comes to hanging, hang them all…..Sudhir, Bagyenda, BoU, and all other smaller unmentioned thieves who have caused misery to hard-working peace-loving folk.

  2. “Today I feel proud that I live in a country with strong institutions to check this kind of impunity. As we know, it is BOU managers like Bagyenda not Sudhir, who are in the dock.”

    Like I have said 1000 times, sometimes I do not know whether to laugh or to cry when I read the things that M9 says..

    The statement above is like a person who claims to be happy to come from a family/society that buries its dead, gives them an elaborate funeral and last funeral rights, but could not look after the same person when he/she was in hospital. Its like a hospital that prides itself in in its MORTUARY which carries out post mortems that can precisely tell what the person died of, when it does not have a laboratory to carry out the simplest of tests to establish what a person is suffering from.

    As they say, all these actions are carried out after the “horse has bolted”. CRANE was not the first bank to be made to collapse, it was probably one of the biggest, together with GREENLAND.ALL these so called supervisory institutions are there for only one purpose – regime perpetuation. They are there first and foremost , to look out for the interests of the regime. So , a newspaper, radio station, bank etc will be closed if it threatens or is perceived to threaten the interests of the regime. Ditto BW will have his shows banned. Ditto any businessman will have the IRA at their door , or made to pay ridiculous taxes.

    UGANDA , on paper, has some of the best oversight institutions but all these are a circus and their actions are all informed by orders from above, their appointing authority.

    AS we all know, this is yet another enquiry and there will be yet another report that will rot on the shelves of some office.

    END OF THE MATTER.

  3. 1.There is actually not much i expect from the COSASE report.
    2.The issue of conflict of interest during supervision of commercial banks was so glaring.
    3. The governor BOU has no serious role he plays in the bank.
    4. Government needs to get rid of the obote trained economists like Mutebille.
    5. BOU Board should comprise of experienced economists and bankers not exhausted board members who keep limping from board to board.
    6. At times its good for the nosy and semi illiterate like MPs to expose the educated like BOU officals.actually BOU should be supervised by parliament.
    7.The Baganda and Westerners are naturally a crafty lot i got the feeling that the Baganda BOU lawyers were thinking that whoever hunts for them whether God or the devil will find them hidden in the thicket of the law.
    8.BOU top officials had no sense of the place called BOU.they acted like call girls.
    9.So all along the celebrations with shots of tequila when Crane Bank is ranked as the best bank in Uganda was all stage managed by Sudhir?.
    10.Ugandan owned banks Banks like; Centenary,Housing Finance,Post Bank have stood the test of time partly because they are either government owned or the stakeholders are not profit minded.
    11.The banks that closed shop were owned by individuals who lived a pompous life style at the expense of the Bank for example;Sudhir, Kiggundu with his wife Mia(who bleached her skin),Katto Family and the Kigezi jokers.
    12. Crane bank did not insure most of the loans otherwise they would not have been in such a mess.actually when i look at the money BOU was requesting Sudhir to inject in the his bank to keep it afloat it was not much he could have asked a sound bank like Stanbic to lend him money.

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