By Timothy Odoch
On Tuesday 11th December 2018, the mainstream newspapers carried stories that implied that Justine Bagyenda, the former Executive Director Supervision at Bank of Uganda sold banks by a phone call.
The stories related to the ongoing inquiry into closed banks by the Parliamentary Committee on Statutory Authorities and State Enterprises. We believe that it is crucial to revisit this process and seek some deeper answers.
Certainly, the inquiry has left us with many points to ponder. It is not the first time that the Bank of Uganda is facing parliamentary scrutiny and it certainly will not be the last.
But for many reasons, this inquiry is unique and will have far reaching implications. We will return to the implications on another day.
One reason why these proceedings have been long and drawn out is that they touch the closure of seven banks and are based on a report of the Auditor General, itself commissioned by Parliament.
There is much to say about this probe. For starters, the probe seems to have focused on a few individuals, particularly one Justine Bagyenda and one Benedict Sekabira, rather than the institution of the Central Bank.
So sharp is the focus on these two individuals that we now have phrases like “Sekabira banks” and “Bagyenda banks” given to us by none other than the chairperson of the Committee, Hon Abdu Katuntu.
One is easily forgiven for thinking the committee is investigating the actions of these two individuals and not those of the bank as an institution.
So for today, it helps to start with setting the context and perspectives that one should keep in mind while watching the proceedings.
While the freshest bank closure on people’s minds is Crane Bank, closures have been with us for some time and indeed the Committee has taken us back to the closure of Teefe Bank in the early 1990s.
It is easy for anyone watching the proceedings and the manner in which they have been conducted to miss some really crucial points. Let us revisit the process and the content, starting with a few points for context.
Firstly, from a historical perspective, no matter what the viewer thinks, a keen observer will notice that Bank of Uganda actually has learned from past experience to never be in a position where depositors have to line up for their funds ever again after a bank has been closed.
Those who were around towards the turn of the century will remember the sight across the country when Greenland and Cooperative Banks were closed.
From young people to civil servants that were about to or had recently retired from government service, there were miserable faces standing in long lines, clothed with despair as to whether they would receive any money from their savings that they had kept in those banks.
It helps the reader to remember that in such a case, the funds one can receive back are capped at Uganda shillings three million. It does not matter if one has 100 million, one billion or three hundred thousand shillings. All you get is not more than 3 million. The events of those years almost two decades ago left a sour image on many people’s minds. People and families lost their life savings.
It is important therefore to note and contrast this historical context with the fact that ever since the amendment of the law in 2004, this situation has never occurred.
No loss of funds
Bank of Uganda closed Global Trust Bank, National Bank of Commerce and Crane Bank under the Financial Institutions Act of 2004. In all three cases, no single depositor lost any funds. There were no lines on the streets.
This is not because the situation could not have reoccurred. It was deliberately and carefully avoided. No single depositor lost a penny. Banks were closed and the next morning people went on with their lives. No single individual or family lost money.
The businessman in Kikuubo and the lady selling tomatoes in Nakawa market all woke up the next morning and went on with their lives. They will never be like those families that never recovered from the collapse of Greenland or Cooperative Bank.
One watching present proceedings and reading the mainstream press will easily arrive at the conclusion that Bank of Uganda works so casually and carelessly that the affairs of our financial sector are treated that simply.
This is far from the truth. Closure of a bank is a collective effort that involves different departments and offices within the Central Bank. It is not a one-day affair or the decision of a single individual in Bank of Uganda.
It certainly cannot be true that one Bagyenda simply sat in her office, made a phone call and sold a bank without consulting or even getting the consensus of her juniors and superiors.
How could she have managed to step into all the branches on the same day, take over management, and at the same time be at the head office of the central bank overseeing the signing of documents to sell off these banks?
What is in all those files that have been submitted to the Committee on a daily basis if this one woman sold banks by a phone call?
For the mainstream media to report that way is either misleading or careless. This instead would lead to a more troubling question: if this woman was this powerful, what does that say of the other various offices and persons in the institution, those at her level, those below and those above her?
It might help the public to better understand the matter if the Committee was more interested in and if Bank of Uganda could explain how much time it takes to arrive at the decision to actually close a financial institution?
What is the process and who is involved? It would be more troubling to learn that Bank of Uganda never gave the owners of these banks an opportunity to avoid closure than it would for us to focus on a one Bagyenda or a one Sekabira in order to somehow portray the central bank as an institution that has no structures, no junior staff, no senior staff at all. And yet we all know this is not true.
Some experts would say that when resolving a failing bank, the central bank focuses on two core duties: firstly, the Bank protects depositors and their funds; and secondly, the central bank aims to maintain financial stability and to minimize disruption of the financial sector to the highest extent possible.
Bank of Uganda officials have been attempting to explain that for these two reasons, any leakage of information or even a rumor about the closure of a bank can lead to the occurrence of these two risks.
Bank of Uganda officials have also attempted to explain that given the sensitive nature of the process, if the central bank is to manage the process successfully, it has to be managed with the highest secrecy and in the swiftest manner.
This is the reason that has been given for not having minutes for some of the processes. While we may not like the reason, can we argue against the principle? Would a lay man with a little hard-earned money wait for Bank of Uganda to write minutes before closing the bank in order to avoid losing their funds or would they rush to withdraw the funds?
We may not like how this job was done but we cannot argue with the fact that those who did it saved many depositors from the lingering memories of those long lines from the late 1990s.
In this series, we will take a closer look at the COSASE process has been conducted and what lessons it teaches us. We will look at how each bank was closed and attempt to answer some questions such as: was Bagyenda really that powerful?
What does this whole process mean for the ordinary Ugandan? What happens to the Bank of Uganda after this process? For today, let us invite our reader to simply take a closer look.
The author is a retired banker and senior citizen