Uganda’s Auditor General, Mr John Muwanga, has released a report faulting Bank of Uganda for not following proper procedures over the sale of Crane Bank and closure of six other banks pointing to possible fraud in the transactions.
In his 94-page audit report to Parliament, Muwanga says that given its conduct during the liquidation process, Uganda’s central bank lacks the discipline or willingness to perform basic business practices like keeping ledgers and records of their transactions during the liquidation of the closed commercial banks.
“I observed that there were no guidelines/regulations or policies in place to guide the identification of purchasers of defunct banks. There were also no guidelines to determine the procedures to be adopted by the Central Bank in the sale/transfer of assets and liabilities of the defunct banks to the identified purchases,” Muwanga notes.
Mr Muwanga submitted the report to Speaker of parliament Rebecca Kadaga on August 17. The report covers the process followed by BoU to liquidate the commercial banks, and details a trail of corruption allegations featuring officials unable to provide proof of the process they claimed to have followed.
According to the report, it is claimed that BoU officials sold a good loan book worth Ush588.6 billion ($153.6 million) to DFCU Bank at a cost of Ush200 billion ($52.2 million).
Mr Muwanga says he could not establish how Dfcu was picked as a buyer and how terms of the Purchase and Assumption (P&A) agreement were reached.
“I was not provided with the negotiation minutes leading to the P&A agreement. In the absence of the minutes, I could not determine how BoU selected the best evaluated bidder and how the terms in P & A were determined,” Muwanga notes in his report.
This implies that BoU and its advisors just picked whoever they wanted to sell to, hence the winning bid and terms of P&A were reached between BoU and Dfcu in a non-transparent manner.
The report also says that when BoU officials were asked about this anomaly they said that DFCU had been sold the bad loan book as well. The auditor general says that DFCU Bank decided what it wanted to pay for Crane Bank’s assets, and that is the amount that the central bank accepted.
DFCU Bank has previously benefited from the sale of Global Trust Bank (GTB). The Auditor-General’s report shows that DFCU bought well secured loans belonging to GTB at a discount, which is illegal under the Financial Institutions Act.
The report also shows that BoU sold the assets of the National Bank of Commerce to Crane Bank at a discount.
International Credit Bank (ICB), Greenland Bank, Cooperative Bank and National Bank of Commerce, with assets worth Ush164 billion ($42.8 million) were sold at a discount of 80 per cent, the report further shows.
In the cases of ICB, Greenland and Co-operative Bank, whose assets were sold at a 93 per cent discount, the BoU rejected an offer of $10 million ($37.9 million) in May 2007, but accepted half that price seven months later. The central bank accepted 26 per cent of the value of loans that were well documented, with legal and equitable mortgages.
BoU could also not provide the Auditor General details of loans and advances transferred to Dfcu and evidence of valuation of assets before sale hence it was insufficient to respond to his observation.