COSASE REPORT: BOU SOLD CRANE BANK ILLEGALLY

Posted On 22 Feb 2019

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In Kampala
The Report of the Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) on Special Audit Report of the Auditor General on Defunct Banks that was presented to parliament has blamed Bank of Uganda (BoU) officials for causing a financial loss to Crane Bank Limited as well as the central bank itself.
The long-awaited report says that all BoU officials who failed to properly execute their duties in accordance with the law should be held responsible for their commissions or omissions.
Among the officials mentioned as not doing their work and they should have done, are the current Ben Sekabira, Director Financial Markets Development Coordination and Edward Katimbo Mugwanya, who was the statutory manager of CBL. Others heavily mentioned for failure to adhere to the FIA procedures are Governor Emmanuel Mutebile and his deputy Dr. Louis Kasekende.
The report recommends that BoU which failed to value the assets and liabilities of CBL, Global Trust Bank and National Bank of Commerce and that considering the lapse of time and impossibility in revaluation of assets should address the probable financial loss occasioned.
The report presented by MP Abdu Katuntu, the out-going COSASE Chairperson also recommends that BoU makes good of the loss as they financially disadvantaged CBL by breaching the statutory duties provided in the Financial Institutions Statute, 2004.
More so the report pins BoU on Shs478 billion which BoU wanted CBL shareholders to pay back on claim that it was used as liquidity support to CBL in receivership. The report wondered why BoU officials wanted CBL shareholders who were not party to Shs200 billion purchase of assets and assumption of liabilities agreement that saw Dfcu bank buy CBL moreover money paid in installments.
The MPs in their report have recommended that BoU bears the cost of their negligence as far as the transaction is concerned.
The report also notes that at the time CBL was sold on January 25, 2017, it had gotten out of the financial distress even as BoU said it was still under receivership.
The MPs have also proposed a number of changes to the Financial Institutions Act that partly trims the powers of the central bank especially in the supervision of commercial banks but also have recommended that both the Governor and Deputy Governor be removed from being Chair and deputy chair of the BoU Board respectively.
The board did not adequately supervise management in the process of liquidating the financial institutions, reads part of the report, adding: Good corporate governance principles would require that the position of chairperson and vice chairperson of the board is separated from the position of Chief Executive (Governor) and his Deputy.
It is therefore the recommendation of this committee that article 161 (4) (of the Constitution) be reviewed to separate the offices of the leadership of the board and top management of BoU, the report, signed by 27 of the 35 MPs on the committee recommended.
The MPs said that whereas in their 15th December 2016 meeting the board had resolved under minute no. 3754 paragraph 10, that the would-be buyer of CBL would take all the assets and liabilities after a forensic audit was out, the Management of BoU went ahead and conclude a sale agreement with Dfcu that excluded some assets and liabilities.
They also blamed the BoU board for ratifying the sale that included charging interest on the Shs 200 billion differed consideration at the CB rate on reducing balance basis, an act that in effect constituted a discount of Shs39 billion to the buyer but would be recoverable from the shareholders of Crane Bank.
Crane Bank was sold illegally and after it had recovered from insolvency
In specific reference to the sale of Crane Bank, the MPs also found The principles of legality therefore were highly compromised. This is exacerbated by the absence of minutes or any record detailing the process of arriving at the figures, observed the MPs, further adding that failure to value the assets and liabilities of Crane Bank before selling it to Dfcu was imprudent.
The inevitable conclusion therefore is the BoU did not know the exact assets and liabilities it was disposing off. The reliance by the Central Bank on the due diligence undertaken by an interested party and eventual purchaser to purport to determine the value of assets and liabilities was imprudent and an abdication of statutory responsibility.
The MPs also found that BoU sold CBL without the authority of the board, although the board later turned around to approve the decision, a decision MPs said was an abdication of its fiduciary responsibility.