Govt Did Not Capitalize Crane Bank - BOU

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In short
Justine Bagyenda, the Central Bank Executive Director in charge of supervision told parliaments finance committee today that contrary to media reports, government did not capitalize Crane Bank. She faults the media for misrepresenting issuance of treasury bonds as capitalization of the Bank.

Government has refuted reports that it injected 200 billion Shillings into Crane Bank prior to its takeover by DFCU group. 

Justine Bagyenda, the Central Bank Executive Director in charge of supervision told parliament's finance committee today that contrary to media reports, government did not capitalize Crane Bank. She faults the media for misrepresenting issuance of treasury bonds as capitalization of the Bank.

Bagyenda appeared before the committee alongside State Minister for Planning David Bahati upon an invitation to explain events that preceded the takeover of Crane Bank. The committee sought answers on circumstances under which assets and liabilities of the bank, which used to be Uganda's third largest banking institution, were transferred to DFCU Group.

Crane bank was taken over following a report by Central Bank indicating that it was significantly under-capitalized and posed systemic risks to the stability of the financial systems. Back then, Governor Emmanuel Tumusiime Mutebile said that the continuation of Crane Bank activities was detrimental to the interests of its depositors.

Problems within Crane Bank were first detected at the end of September 2015 after regular examination indicated that there was significant under-capitalization of the bank. This was also confirmed in the auditor's report of 2015 indicating that the Bank reported a consolidated pre-tax loss of over 7 billion Shillings during the year as a result of an increase in expenses and losses on loans and advances.

This was a contrast of its 57 billion Shillings profits recorded in 2014. Mutebile said that the problem was partially caused by a number of bad and doubtful loans that could have undermined the performance of the bank. Immediately after the takeover, media reports indicated that government used 200 billion Shillings to recapitalize Crane Bank.

However, Bagyenda told the Committee that when Crane Bank got into trouble, Finance Minister Matia Kasaija issued a letter requesting the Central Bank to issue treasury bills or bonds amounting to 200 billion Shillings for monitory policy purposes.

"In accordance to the Public Finance Management Act (PFMA-2015 36 (2) (b), I here authorize issuance of treasury bills or bonds amounting 200 bn for monitory policy purposes. This is to enable Bank of Uganda (BOU) address the current issues affecting the financial sector." reads part of the letter dated October 19 2016. 

According to Bagyenda, it is this letter that was misread by sections of the media to indicate that 200 billion Shillings was injected in Crane Bank. She emphasized that Bank of Uganda never used tax payers' money to recapitalize Crane Bank.
 
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Gomba East MP Kalule Ssengo questioned why it took government so long to dismiss the rumor of 200 billion Shillings indicating that there must be something fishy.
 
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Minister David Bahati however noted that immediately the rumor came out in the media, they confronted it but it has continued to remain in the public domain.

Meanwhile, finance committee chairperson Henry Musasizi demanded the tabling of a number of documents including the resolution of the Central Bank on the sale of Crane Bank to DFCU, sales agreement between BOU and DFCU, Inspection reports by BOU on Crane Bank for the years 2015 and 2016, internal audit reports and Forensic audit reports on Crane Bank by Prince Water Coopers (PWC).

Bagyenda promised to avail the documents but noted that the Central Bank is still conducting a forensic audit into Crane Bank, to establish how the once glorious bank, became bankrupt.

"The audit report discovered that Crane Bank was 239 billion in deficit, from here, we commissioned a forensic audit which has to show how the loss came in. The interviewing of relevant persons in the bank hasn't been completed," said Bagyenda.

MPs asked for the tabling of the draft forensic audit report, to which Bagyenda replied that it is still hanging since investigations are not yet finished.
 
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However, MP Musasizi insisted that parliament has used draft reports before prompting state minister Bahati to promise to produce the draft report on condition that it is treated as a draft.

 

About the author

Olive Nakatudde
Olive Nakatudde is a URN journalist based in Kampala. Nakatudde has been a URN staff member since 2013.

Nakatudde started out in journalism in 2009 with Dembe FM radio in Kampala. In 2012, Nakatudde joined Voice of Africa as a political reporter. She has been a photographer since her journalism school days at Makerere University.

Nakatudde is interested in good governance and public policy, which she reports on intensively from the Uganda Parliament. She is a keen follower of cultural affairs in Buganda Kingdom and covers the kingdom's Lukiiko (parliament). Nakatudde also reports on education and health.