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‘We were lucky to sell Crane Bank at Shs200Bn!’ – Mutebile lashes out at critics

The governor Bank of Uganda, Emmanuel Mutebile has lashed at critics citing that the state of Crane Bank was not even worth shs.200bn at the time of sale against its bad loans that amounted to over Shs458Bn(FILE PHOTO)

KAMPALA- Officials from the Central Bank have said they were lucky to sell Crane Bank Limited at Shs200Bn to dfcu because the troubled financial institution had accumulated bad loans to a tune of Shs458Bn.

This Defence and much more are contained in the written response provided by Bank of Uganda to the Parliamentary Committee of Commissions, Statutory Authorities and State Enterprises (COSASE) that is probing circumstances under which Bank of Uganda closed seven Banks.

Among the Banks closed by the Central Bank are; Teefe Bank in 1993, International Credit Bank Ltd in 1998, Greenland Bank in 1999, The Co-operative Bank in 1999, National Bank of Commerce in 2012, Global Trust Bank in 2014 and the sale of Crane Bank Ltd to DFCU in 2016.

The probe into the closure of the seven defunct Banks culminated from a letter by COSASE authored in November 2017, requesting the Auditor General, John Muwanga to undertake a special audit on the closure of these commercial banks by the Central Bank after the controversial closure of crane bank.

The Auditor General report later released his report in August 2018 highlighting a number of queries in the management of the process leading to the closure of the Banks and among these, Crane Bank.

The Auditors in their report admitted that they had failed to establish how consideration of Shs200bn from dfcu as the price of Crane Bank was reached at by Bank of Uganda.

However, in the written responses Mutebile is expected to present to the Committee on Friday next week that the deferred cash consideration of up to Shs200Bn was based on net recoveries on fully provisioned non-performing assets as adjusted following dfcu Bank’s due diligence which put the figure at Shs500Bn.

Bank of Uganda argued that when the fully-provisioned assets were scrutinised, it was discovered that some of the loans could only be classified as loss category and whose recovery was found to be very uncertain given that some of them were objectively more than 355 days past their due date or have general weaknesses in terms of; origination, collateral and its registration or enforceability.

Attempts to have them recovered were found to be impossible given that the conditions the loans were in would complicate recovery stating that such assets carry a zero value on the balance sheet and their recovery is usually; cumbersome, strenuous, very costly, and partial and is most importantly achieved over a much longer time frame.

“A review and assessment of the bad portfolio was conducted in a bid to ascertain forced recoverability of major loans and possible timelines. For an acquiring bank (dfcu Bank) to have bid to pay Ugx.200bn staked against a possible recovery from such a portfolio worth Ugx.458bn, which CBL had failed to recover, was a great achievement,” as indicated in Bank of Uganda’s written statement.

Additionally, BOU further defended the decision to close Bank of Uganda on grounds that the move was intended to secure Uganda’s banking sector, as failure to do so would have led to dire consequences for the whole banking sector.

This was after the Auditors had faulted BOU for failing to prepare a plan to revive Crane bank.

Still in the written response, BOU asserted that following an onsite examination and a finding of significant under-capitalization, the shareholders of CBL were given an opportunity to revive the bank through a capital call on July 1st2016.

However, Crane Bank’s Shareholders are said to have failed to comply with the capital call, forcing BOU to exercise its powers under section 87(3), 88(1Xa)&(b) and took over management of CBL.

The response read, “The takeover under section 87(3) was guided by the systemic nature of the undercapitalised institution to avoid financial sector instability. The results of a subsequent inventory and forensic investigation guided the resolution plan that resulted in the P&A.”

 

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