Former Executive Director in Charge of Supervision at Bank of Uganda, Justine Bagyenda, has explained circumstances under which the central bank sold bad loans from the defunct banks to a private institution at a 93 per cent discount, saying banks did not secure these loans with solid collateral security.
“We dumped them together because the characteristics of secured and non-secured loans were similar; some of these loans did not have proper documentation,” said Bagyenda.
She said some of the loans were obtained by individuals using family property as security which made recovery almost impossible.
Bagyenda, who has been appearing before the Committee on Commissions, Statutory Authorities and State Enterprises since Monday, said BoU wondered how the defunct banks gave loans without doing due diligence on collateral.
According to the Auditor General’s Report in 2007, Bank of Uganda signed an agreement with Nile River Acquisition Company to sell the debt portfolio of Greenland Bank, ICB and Cooperative Bank at US$25 million (Shs 8.9billion).
Cosase chairperson Hon Abdu Katuntu (FDC, Bugweri) said it was unclear why BOU chose to lump loans accrued by the defunct banks.
The debt portfolio comprised secured, poorly secured, unsecured and unknown loans amounting to Shs135 billion.
Of this, was a portfolio of properly secured loans of Ushs34 billion, which had valid, legal or equitable mortgage on the real property and were supported with proper legal documentation.
The sales price offered of Shs8.898 billion represented 26 percent of the total secured loan portfolio and 7 percent of the total loan portfolio.
Bagyenda said the Bank had collected money from the loans of closed banks for eight years so after getting authority to exit, the loans had lost value.
She further said Bank of Uganda carried out a desktop valuation of the property that was available and confirmed their market value using Bageine and Co. Advocates.
Katuntu said that there should be an explanation in form of documentation.
“Where are the documents to show that you decided to sell these loans? We want to know if you valued these loans?” he asked.
Hon. Michael Tusiime (NRM, Mbarara Munic.) said that as they prepare the documentation to justify the purchase, they should explain why the banks accumulated loans under their watch.
“The onus of investigating and supervising loans with commercial banks was with BOU. They should have been able to detect loans amounting to such sums, some without proper documentation,” he said.
Bagyenda however added that the documentation showing the valuation and justification of selling the loans must be with BOU, which it should avail because she had since left the bank.