Sinking DFCU bank closes branches, employees exit as the liquidity crisis bites

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Kagenyi Lukka

By Kagenyi Lukka

Another script is yet to be written in Uganda’s banking sector as dfcu bank sinks day after day according to what we have witnessed of recent.

We recently learnt of the revolt by its second majority shareholder, the Common Wealth Development Corporation (CDC) which announced that it would cut ties with bank.

In the same week, one of its board members, Mr Deepak Malik of Arise BV,the bank’s majority shareholder resigned as controversy spiralled at the bank’s tower.

To confirm that the bank was going through tough times, the board chairman of DFCU group, Elly Karuhanga hastily  called a press conference on 6th July only to confirm to the public that there unease at the bank’s tower.

He averred that the bank which earned net profit of Ug.shs 127 billion in 2017 was facing liquidity challenges, and thus unable to meet its obligation to lend its customers to the tune of loans they apply for.

To understand the stock of the debacle that is dfcu, one needs to delve into what’s happening at the institution.

And below is what my reliable sources reveal.

  1. a) The unrest and exit of employees.

 *William Sekabembe.*

As I penned down this article, I was briefed about the exit of dfcu’s executive director, William Sekabembe.

Sources  that preferred to remain anonymous reveal that he resigned last week and is set join rival, Kenya Commercial Bank(KCB).About 95% of employees are set to join Mr Sekabembe in Jumping ship to kcb with majority having already tendered in their resignation notices.

*Resignation of branch manager Ntinda.*

A one Carol, recently resigned confirming the revolt among employees. Ntinda is one of the prime branches of dfcu bank.

Carol’s resignation brings to 5 the number of bank branches that are operating without branch managers.

The said branches only operate with operational managers and a few customer service staff.

On top of all this, the unrest among staff is being exacerbated by   the refusal to do performance appraisals, failure to replace vacant positions and the hiring of more expensive staff from other banks.

 *b) Former crane bank branches.*

DFCU is struggling to maintain former crane bank branches with 60% of them reported to be non-operational pointing to the fact that its envelope is too small run them. If the bank can’t doesn’t have enough money to give as loans, how can it aptly run branches of former crane bank?

*c) Organised robbery at the bank.*

From my reliable sources, there has been robbery at DFCU branches, which has further worsened the liquidity situation at the bank. In particular, sources reveal that Kampala road branch was recently robbed of Uganda shillings 150 million while the Entebbe branch manager is reportedly under investigation for stealing about one million US dollars from the bank. The latter freed the country on emirates airlines.

Related to the above, are reports that one needs to bribe DFCU staff to attain a loan amidst the drying of its vaults.

“As we talk, to get a loan, you need to bribe an MD with 20,000 US dollars”, a source told me.

If this isn’t organised robbery, what is it?

  1. d) *Even Other banks can’t lend dfcu.*

Interbank lending is a common practice in banking.

The interbank lending market is a market in which banks extend loans to one another for a specified term.

Banks are required to hold an adequate amount of liquid assets , such as cash , to manage any potential bank runs by clients.

If a bank cannot meet these liquidity requirements, it will need to borrow money in the interbank market to cover the shortfall.

In this arrangement, DFCU bank has over borrowed from other banks exhausting its limits and thus, other banks can no longer give it money. This ably explains the liquidity shortages at DFCU bank.

 *Is BoU the last resort?*

With dfcu bank unable to borrow from elsewhere, BoU seems to be its life line being the lender of the last resort.

But what if BoU declines the request for a loan by DFCU because the latter is incapacitated?

Can the bank whose vaults are getting empty ably pay back?

In sum, there is a big cloud of darkness at dfcu bank, with its managers seemingly culpable for the current mess.

Will Bank of Uganda act hastily like in the case of crane bank?

Kagenyi Lukka is a current affairs analyst and the next MP,Ikiiki.

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