Former Crane Bank proprietor, Sudhir Ruparelia, is for the first time appearing before Parliament’s COSASE investigating defunct banks in Uganda.
Wearing a white linen attire, Sudhir arrived at Parliament on Wednesday morning to interact with MPs on circumstances under which his bank was taken over by Bank of Uganda in 2016.
Sudhir has since blamed the poor economy at the time, saying it crippled Crane Bank’s borrowers who had taken out large sums of money from the institution.
He argued that this caused a liquidity crisis and that Bank of Uganda, as a lender of last resort, did not provide the much-needed funds to help the institution.
However, BoU Deputy Governor Louis Kasekende last year said the “insolvency of Crane Bank was not caused by any problems in the wider economy; it was caused by its own mismanagement, not least by its extensive insider lending.”
Kasekende further said despite the weakness of the economy in 2016, all of the commercial banks in Uganda, with the exception of Crane Bank, remained solvent and were able to comply fully with the statutory capital adequacy ratios.
“The only bank which suffered financial distress and became insolvent was Crane Bank,” said the deputy governor.
However, in its attempt to keep inflation under control and stop the shilling from further depreciation, Bank of Uganda raised rates aggressively in 2015, reaching a high of 17 percent in October 2015.
This seriously impacted the economy. Experts argued then that many banks took a hit due to the fact that BoU’s actions were suffocating the economy.
Crane Bank management said in its court documents that it suffered more because its competitors were not asked to write off capital, counter to Bank of Uganda and international accounting practices.
The MPs are expected to query Bank of Uganda’s decision to sell Crane Bank to dfcu bank.
BoU said the resolution of Crane Bank through purchase of assets and assumption of liabilities transaction (P&A) with DFCU achieved “valuable benefits” for Uganda which included protecting Crane Bank customers’ deposits and minimum disruption of banking services.
Kasekende also spoke out on claims that Crane Bank was sold by the BoU for a fraction of the value of its assets, ignoring the fact that a bank has liabilities, such as deposits, as well as assets.
He said when Crane Bank was resolved by the BoU, the value of its assets was much less than the value of its liabilities.
“Consequently Crane Bank had a negative net worth of approximately Shs 260 billion; it was insolvent,” he observed.
Kasekende said the remaining assets and liabilities not transferred to DFCU were put into the liquidation process.
“The claim that there was something suspicious or scandalous about the resolution of Crane Bank betrays a lack of understanding both about the financial realities of banking and of the means through which failed banks are resolved by bank regulators. The P&A transaction used by the BoU is a commonly used bank resolution tool all over the world, and it is fully consistent with the powers and responsibilities accorded to the BoU in the Financial Institutions Act,” he observed.
Kasekende explained that prior to the resolution; the BoU had to lend money to Crane Bank, through its liquidity support facilities, to ensure that the bank did not become illiquid.
“These loans from the BoU could only be partially repaid from the assets of Crane Bank. The public funds used to keep Crane Bank liquid before its resolution will only be fully recovered when the owners of Crane Bank pay back the insider loans that they took out of the bank,” he added.
ChimpReports understands while 12 potential buyers showed interest in acquiring Crane Bank, seven walked away from the negotiating table over concerns about the financial position highlighted in the due diligence report on Crane Bank.
It’s understood that a week before BoU’s intervention, a supervision audit report found a $10 million liquidity gap in Crane Bank’s books.
Outgoing dfcu bank boss Juma Kisaame said “dfcu participated in the bid (for Crane Bank) and emerged the best bidder and we subsequently managed the integration process very well.”
He said dfcu “had to bring in capital of about $50m within four weeks and we are currently one of the most well-capitalized businesses in Uganda, which will help drive future business.”
“No customer lost their money. Even the loan contracts were honoured the way they were and that saved this country money. If Crane Bank had continued into liquidation and everyone was to be paid, the Government would have spent over sh1 trillion, meaning we would have had to forget certain services, maybe a hospital or road,” he said last year.
“For just about five months that Bank of Uganda was in charge, it spent over sh460b paying depositors who wanted their money. And that money was coming from government coffers,” he added.