By Kagenyi Lukka
Parliament Tuesday afternoon discussed the report on the closure and sale defunct commercial banks by Bank of Uganda (BoU).
The report was tabled last week in parliament by Hon Abdu Katuntu, the immediate former chairman of the committee on commissions, statutory authorities and state enterprises (Cosase).
The report was one in a series of efforts intended to create sanity with in Uganda’s banking sector especially that seven banks have been closed since 1993 without any report being made by BoU which is the supervisor of the commercial banking sector.
The precursor to the intense probe by cosase was the special audit report on defunct commercial banks by the Auditor general which left no doubt that BoU had been involved in irregular processes.
The Cosase report unmasked cases of non-compliance with established laws especially the Financial Institutions Statute, Financial Institutions Act(FIA) (2004), the National Records and Archives Act(2001) among others.
The contravention of these laws was being done by top BoU officials in the supervision department.
In most cases of defunct banks including crane bank limited, Responsible Bank of Uganda officials violated section 89 (3) of FIA (2004).
This section provides that, “The Central Bank shall as soon as possible after taking over management of a financial institution, appoint an auditor at the cost of the financial institution to make an inventory of the assets and liabilities of the financial institution and submit a report to the Central Bank’.
Section 89 (3) of FIA should be read together with 32 (3) of the Financial Institutions Statute (1993) which BoU should have based on to close and sale defunct banks before the current law was enacted.
This section provides that, “The Central Bank , may in carrying out its duties as a receiver, either arrange a merger with another financial institution, in which case the acquiring financial institution will assume all recorded deposit liabilities of the insolvent or proceed with liquidation of the insolvent financial institution”.
From the above laws, Bank of Uganda was required to have all assets and liabilities of stressed banks.
Conducting of an inventory is mainly significant for two reasons; it is supposed to aid in decision making, helps in determination of the value of assets and liabilities but finally, it forms the basis for accountability to shareholders and other stakeholders.
Page 9 of the Cosase report on Teefe Trust Bank Limited shows that while Teefe Bank was closed in November 1993 pursuant to the FIS (1993), BoU didn’t provide an inventory as required by law but rather provided a balance sheet.
The committee couldn’t be availed with documents of the post closure and management of Teefe Trust banks and liabilities.
Worse to note, is that BoU still possesses some securities of Teefe whose proper records can’t be established.
The committee report also notes that there was no inventory report for International Credit bank Limited but an inception report for liquidation by KPMG.
So what exactly did BoU sale that it didn’t know?
The Ghost Company, Nile River Acquisition Company.
In the case of ICB, Greenland Bank and Co-operative Bank, Bank of Uganda sold a total loan portfolio of Ugx 135 billion to M/s Nile River Acquisition company(NRAC) at an incredibly outrageous discount of 93%. These loans included ugx 34.5bn which had valid legal or equitable mortgage on real property and were supported by legal documentation.
Evidence available indicates that NRAC was not registered in Uganda which contravenes the Companies Act, Section 369 and 370.
Octavian Plc advisors that registered NRAC in Mauritius was given exclusivity from any other competitor according to the 25th September 2007 by Justine Bagyenda, the former Director for Supervision.
Bagyenda’s letter only served to inform the governor as a decision to shield Octavian from competition had been sealed by her others like Benedict Ssekabira who became a broker for Octavian advisors.
All the officials such as Bagyenda, Ssekabira and the legal team should be apprehended because they acted with conflict, violated the Company Act.
How could a non-existent company fraudulently enter into such a business transaction that resulted into losses?
Crane bank Limited
Cbl and its owner, Dr Sudhir Ruparelia were sinned against .Therefore, perpetrators of such sins should be apprehended.
Like mentioned above, there was violation of Section 89 (3) of FIA.
For instance, auditors were appointed on 28th October 2016, a week after BoU had taken over cbl yet this section requires that auditors should be appointed as soon as possible.
In absence of an inventory, what did BoU takeover on 20th?
While cbl’s inventory report was produced on 21st Dec 2016, dfcu submitted its bid on 20th Dec 2016 which was a day before production of the inventory report.
Therefore to enter into the P&A agreement with DFCU, BoU relied on the due diligence undertaken by DFCU. This means that the inventory report produced on 13th of January 2017 was inconsequential in accepting DFCU’s bid for the soul of cbl.
Furthermore, disclosing of cbl records without its knowledge to its buyer and competitor bleached Section 40 (3) of the BoU Act.
Finally the Cosase report indicates that between 1st and 24th January 2017, CBL had met the required liquidity compliance levels. The bank’s liquidity position had stabilized (page 56 of the Cosase report).
The acts of negligence, conflict of interest, fraudulent transactions, misuse of authority as put in the Cosase report can’t be left uncondemned and unpunished.
The tax pay is set to bear the cost of illegalities committed by BoU, the perpetrators should be retired and apprehended.