22 March 2012

Uganda: BoU Moves in to Restore Order At NBC

Bank of Uganda has made its first significant step to protect customer deposits at the National Bank of Commerce in the wake of a power struggle among the shareholders.

The Central Bank yesterday appointed an advisor, who will try to swat any run on the bank, and ensure that the operations there continue smoothly.

"In exercise of its powers under section 82 of the Financial Institutions Act, 2004, Bank of Uganda has appointed an advisor to advise National Bank of Commerce (NBC) on its affairs. The appointment takes effect on 22nd March 2012. The move is intended to protect the depositors of that bank whose shareholders are in the process of resolving an ownership dispute," according to a statement from Bank of Uganda. The advisor was not named.

The Observer this week wrote a detailed account of the troubles at the bank, and questioned the Central Bank's management style to rein in errant players like the National Bank of Commerce. This paper wrote that while the Central Bank had grown impatient with NBC's chaos - both at management and within its financial accounts - it had not shown a strong will to act, a reaction that threatened to place a dent within the banking industry.

The NBC faces two separate lawsuits: one from the Dubai partners, who say they have invested close to $10 million for a controlling stake but that the majority shareholders have not met their end of the bargain, and another suit from 324 minority shareholders who question the legality of the bank's trading licence.

Meanwhile, NBC's books of accounts are in a dire state. As at December 2011, according to official documents from BoU, NBC made a cumulative loss of Shs 4.1bn - a 389% jump compared to the previous year's loss of Shs 847m. NBC's loans to customers declined by 18% to Shs 6.9bn in the year ending December 31, 2011. Customer deposits dropped by 16% to Shs 9.7bn during the same period.

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