The affairs of an entity in receivership take a long time to resolve. It will be a long sunset for Crane Bank, its owners and Bank of Uganda. The Central Bank has put Governor Emmanuel Tumusiime-Mutebile on a public relations offensive to justify the closure of Crane Bank and explain away its lax regime that allowed Crane Bank to sink deeper into an abyss from which it could never recover.
Crane Bank has been covered from many angles. Its collapse marked the height of a major crisis in which banks made losses from non-performing loans. The failure of big loans like Steel Rolling Mills, a $50 million loan at Standard & Chartered, was one of them. The highly publicised bailout list shortly after the February 2016 elections where most of the items on the list had contributed handsomely to the campaign of President Museveni turned heads in town.
The New Vision has done good coverage of how one borrower was uniquely treated after fleeing from her creditors and successfully getting Shs64 billion on favorable terms from government.
In fact, if just two or three of Crane Bank's bad loans performed, the story would be different. The rise in the toxic loans portfolio partly arose from BoU's laxity allowing a rogue interest rate regime to reign in the banking sector.
In its bid to mop inflation, BoU raised the CBR to the high teens to mop out election inflation pressures. Commercial banks raised their lending rates to as high as 29 per cent to 30 per cent per annum. BoU also sat still allowing unrestricted repackaging of failing loans that were sold across banks delaying disclosure and provisioning of some of the worst loans. Once liquidity dried up, these loans assumed penuriously prohibitive interest rates some as high as 40 per cent.
Courts have been wish-washy on this subject, a combination of lack of exposure and training in financial matters, but even they have fixed the commercial rate at 25 per cent. The Central Bank also appears to have been inept at enforcing the laws on the book. When the Financial Institutions Act was first passed, a proposal to cap the maximum share holding of an individual was behind closed doors raised from 25 per cent to 49 per cent against global banking best practices, which favour dilution of shareholding.
All three key players behind this change are still alive and active in public life. It is, therefore, incredible to listen to the Governor lamenting about shareholding issues in this respect.
BoU's regulatory function also appears to have been overwhelmed by small and big conflicts of interest. Officially a failing bank like Crane Bank could not have been the one told to assume the assets and liabilities of National Bank of Commerce. It would be interesting for BoU to explain what this chain meant for the retention and acquisition of key government agency accounts.
These accounts holding billions of shillings ultimately saved Crane Bank from shuttering where depositors' recovery would have been limited to statutory amounts. BoU has neither disclosed the total cost of keeping Crane Bank open nor the actual sale price of Crane Bank. BoU publicly disclosed it injected Shs200 billion, but it is suing Sudhir Ruparelia for Shs400 billion.
The Governor says that Dfcu Bank acquired "assets and liabilities" of Crane Bank. This is misleading as some of these liabilities are in the custody of BoU. Dfcu in their half year results, says it spent Shs63 billion on Crane Bank "assets and liabilities", including Shs600 billion in loans. Its half year report also says their deposits grew by 900 billion meaning about 1 trillion disappeared during the run on the bank in the time between BoU's intervention and fire-sale to Dfcu.
An inventory of the Crane bad loans stuck with BoU probably exceeds Shs400 billion, which is why many stories and half-truths have harmed BoU.
Mr Ssemogerere is an Attorney-at-Law and an Advocate.