The banking sector has been left in fear after Bank of Uganda’s decision to take over management of Crane Bank, the third largest financial institution in the country, ignited a fear and shaken trust in the country’s financial sector.
Our Sources yesterday got a confidential report, showing billions of shillings has since been hurriedly withdrawn from Crane Bank by several customers in what appears a loss of trust in the new management.
“People are worried of their savings. The bank run has been on for several months but the recent development has caused more panic. The deposits are shrinking at a faster pace than we anticipated,” said a source at the troubled bank.
This decision might cause more banks to face tough times as the customers will no longer trust them with their money especially with the presence of Mobile Money. Other business people have reasoned out that they could put their money in real estate business than the panicky banking sector.
The Central Bank last week put Crane Bank under statutory management due to being a “significantly under capitalised institution as defined by law.”
BoU further said the commercial bank “poses a systemic risk to the stability of the financial system and that the continuation of Crane
Bank’s activities in its current form is detrimental to the interests of its depositors.”
Despite assuring customers and the public that it will “continue to protect depositors’ interests and maintain the stability of the financial sector,” BoU has failed to win in the court of public opinion hence the panic.
Experienced bankers told this website that BoU should not have rushed to takeover Crane Bank on grounds of being undercapitalized especially at a time when the private financial firm was about to announce a potential investor.
BoU officials who talked to us on condition of anonymity said the Central Bank “has been engaging Crane Bank to take corrective steps since last year; and Crane Management and shareholders fell short.”
Former top officials at Crane Bank said several investors were interested but “we wanted one with strong potential to consolidate our network expansion with the view of extending services to the indigenous businessmen and farmers in upcountry areas. BoU was impatient.”
Officials further said Bank of Uganda should have provided capital at low rates to keep Crane Bank strong during the liquidity squeeze triggered by non-performing loans to indigenous businessmen.
“Bank of Uganda itself has been making losses for three years in a row. How can its leadership be trusted at Crane Bank? People deposit money in banks basing on three things: – trust of shareholders, directors and management,” said a former banking officer who preferred anonymity to speak freely.
“Look at the bigger banks; 85 percent of their profits are bank charges. The profits are repatriated back home. And they don’t invest in our farmers like Crane Bank. Why take a man down who is trying to give indigenous people ability to grow and create greatness?” the ex-banker wondered.
Economy on its knees
Government sources said Crane Bank was accused of flouting corporate governance and management rules and that capital erosion was due to provision for high NPLs; prohibited insider loans; and misstatement of
Bank’s financial position due to failure to follow proper accounting standards.
Yet, ex Crane Bank sources said they at all times received clean bills of health from auditors, wondering why the Central Bank did not take action long ago if it found the financial institution’s accounts lacking integrity.
“It’s just throwing around excuses. The problem is not Crane Bank’s liquidity problems but failing to manage the economy properly,” an ex official at Crane Bank told this investigative website.
It is understood some of the bad loans given by Crane Bank were for real estate which has gone down. That’s partly the reason for the NPLs.
Senior bankers told this website that borrowers should prepare for tough times.
“The guys that will suffer are those that borrowed. They will be asked to pay earlier than they had anticipated,” said a senior banking official in Kampala.
Some of the distressed companies seeking a bailout from government are yet to clear loans worth billions of shillings from Crane Bank.
For example, Club Silk is struggling with a loan of Shs5bn from Crane Bank. Others are AZK Enterprises (Shs1.2bn), Franco Ssonko (Shs
3.5bn), Hooray Investments Holdings (Shs 120bn), Shumuk Aluminum Industries Ltd (Shs 17bn), and Sebei Cooperative (Shs 500m).
Most of the affected companies are engaged in mining, manufacturing, hospitality, agro-processing and real estate.
They claim failing short to finance their bank loans was caused by low profitability, poor performance of the economy and high interest rates.
High on the list of companies struggling in what is seen as a recession are Steel Rolling Mills Ltd which has a liability of Shs 75bn from Standard Chartered Bank.
The steel processing firm’s asset value is estimated at Shs 132bn and currently employs about 1,000 workers.
Steel & Tube Company which employs 2,500 people in Kampala is yet to clear two facilities worth Shs 99bn from Stanchart and Bank of Africa.
In the manufacturing sector, Shumuk Aluminum Industries has failed to pay back a loan of Shs 8.2bn from DFCU bank; Shs 6.6bn from Baroda Bank and Shs 17bn from Crane Bank.
Officials at Crane Bank say the big companies’ challenges directly affect the profitability and performance of its lenders.
Other companies attribute their woes to the depreciation of the shilling against the United States Dollar.
According to Bank of Uganda, the depreciation pressures which started in early 2014 continued through June 2015, with the shilling depreciating by 1.8 percent year-on-year on a trade weighted basis and by 29.1 percent against the USD to an average mid-rate of Shs3, 398.49 per USD.
The depreciation pressures were largely driven by the continued global strengthening of USD; continued weakening of the current account deficit; reduction in Foreign Direct Investment (FDI) inflows on account of deferred investments in the oil sectors because of low global oil prices; net portfolio outflows and elevated demand for foreign exchange from the key sectors of the economy including energy manufacturing and offshore players; and bearish sentiments in the foreign exchange market.
The South Sudan war has equally affected cross border trade thus leading to low foreign exchange revenues from the troubled country into Uganda’s economy.
The powerful Foreign Affairs Minister Sam Kutesa who over the weekend attended the wedding reception of Sudhir Ruparelia’s daughter, Sheena, said “reaffirmed they will be there for Sudhir as he has been there for them.”