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ANALYSIS: How Local banks ‘kill’ investors, economy

By Moses Muwanga

On August 16, 2020, Equity Bank through its agents advertised the intended sale of the mortgaged properties of Simbamanyo.

However, our Investigations reveal that this advert was in bad faith and manifested a motive to unjustly injure the name and business reputation of Simbamanyo and also in the hope of frustrating the ongoing court process. This is typical of the banks particularly Equity Bank.

Simply put the ongoing case involves, the bank pressuring the investor and using illegal transactions for the investor to borrow more than is required and then using the proceeds to balance their (the Bank’s) books. 

Details of the court documents filed on behalf of Simbamanyo by Muwema & Company Advocates in the commercial court vide HCCS no 198 of 2020 reveal that Simbamanyo has sued Equity Bank for breach of trust, unethical and illegal conduct as well as engaging in predatory practices and seeks to question the dealings it had done with the bank. 

Simbamanyo contends that as a regulated financial institution Equity Bank owed it a fiduciary duty to act professionally, diligently and give it (Simbamanyo), advice which is compliant with the law.

Particulars Of Breach Of Fiduciary Duty

Equity bank actively facilitated the procurement of two foreign banks to enter into illegal trans-national financial transactions in breach of its duty to its customer to act with care fairness and reliability and transparency as provided by the bank of Uganda Financial Consumer Protection Guidelines 2011.

Equity bank exerted undue pressure on Simbamanyo to borrow US$ 10 million which was far in excess of the US$7.1 million owed to it promising Simbamanyo that the difference ie US$2.9m over and above the US$ 7.1m owed would be used by the borrower to complete his hotel project.

As it turned out when the US$ 10 million was received by Equity bank it converted a substantial sum of the money obtained in excess of the US$ 7.1 million, not only to balance its books but also to pay its brokers and cronies, leaving a paltry US$0.5 million excess to the borrower to meet advance interest charges as was provided in the new loan agreement. In itself a strange requirement!

In addition to the above and unknown to Simbamanyo the loan transactions were also designed to escape regulatory oversight and also evade public taxation in Uganda.

Equity Bank on its part contends that the belated contention and/or allegation by Simbamanyo that the transactions from which it derived a benefit are illegal is made in extreme bad faith and with the view to escape payment of the loan. To put it plainly the bank is saying Simbamanyo should put up and shut up!!

Unfortunately, banks have put out a narrative that local investors/borrowers are reckless they borrow money and instead of applying it to its intended purpose squander it on luxuries, fancy cars, women etc. and when they default on the loan they run to the courts.

Regrettably many of us have swallowed this negative narrative hook line and sinker.

It goes further to claim that if the amounts owed are not paid the bank’s capital will be badly eroded a situation that could in extreme circumstances result into intervention by the regulator taking over its operations and with the possibility of the loss of over a 1000 jobs.

This kind of narrative also smacks of arrogance of the highest degree.

As if to suggest that the bank should be allowed to operate outside the law and cheat its customers no matter what because if it does not the economy will suffer!

This is a narrative many foreign investors use to try and escape the law and must not be allowed to obtain. These foreign Banks must be told in no uncertain terms that nobody, absolutely nobody is above the law. The law is the law!

Simbamnyo should not be blamed for pointing out and questioning the banks illegal and fraudulent activities from which it the   bank majorly benefitted. The court should be left to decide whether indeed that was the case.

This will not be the first  local investor to become a victim of the banks manipulative practices. There is a litany of local investors that have been destroyed by the banks as we all look on.

Mrs Joy Kwesiga of Mayflower Apartments Ltd V Housing Finance Co.

Recently, a local investor, Mrs Joy Kwesiga widow of Late Eng. Sam Kwesiga has sued Housing Finance Co (u) ltd accusing the financial institution of irregularly and fraudulently selling off her prime property in the upscale city suburb of Nakasero for a giveaway price of US$ 2.5 m compared to a market value of US$9 million. The suit was filed by Mayflower Apartments Ltd in the High Court Commercial Division on August 21 ,2020.

In the suit Mayflower Apartments proprietor Mrs Ida Kwesiga says the property comprised of 16 developed condominiums and 24 undeveloped units.

She had secured the US$2.7m loan from the bank to develop the apartments. The loan was advanced to Mrs Kwesiga on June 4,2013 for a period of 10 years. 

She subsequently faced financial challenges in servicing the loan which were further aggravated by the outbreak of the corona virus pandemic which affected the business and slowed down the cash flow for which the bank should have recognized and restructured the loan.

 However, she was shocked when she received notice that her apartments had been sold to Balaji Group despite a court order restraining the bank from selling off her property

In her suit, Ms Kwesiga is seeking declaration that the sale of her property should be set aside for being unlawfully and fraudulently done. Meanwhile the Balaji Group is busy collecting the rent. Regrettably her business is unlikely to recover.

Hams Enterprises v DTB

Early this year businessman Ham Kiggundu aka Higgs Enterprises sued Diamond Trust Bank vide HCCS No 42/2020 for fraudulently, illegally and irregularly debiting huge sums of money from its account amounting to a staggering UGX 34b and even attached a statement from his auditors as evidence of this.

On Jan 23, 2020 the bank filed a statement of defense requesting that regulation13 of the Mortgage Act be imposed upon Ham Enterprises which required that if a person is to file proceedings against a bank they must first deposit 30% of the disputed sum with the Mortgage Bank.

This is the unfair regulation many banks use to stifle litigation against them and have pushed many borrowers to the wall. An injunction was granted to the company stopping the bank but with 30% condition in place.

THIS CONDITION DEPRIVED MANY BORROWERS WHO HAD BEEN CHEATED BY THE BANKS FROM A FAIR HEARING. Many of these borrowers were victims of banks that had stolen money from them yet they were required to deposit 30% of the stolen money.

Hams Enterprise appealed against this unfair regulation and fortunately the courts listened and an order was granted that in the interest of justice the 30% condition is vacated and the matter be decided on its merit.

Standard Charted Bank v Habib Kagimu Enterprises

In yet another case, In May, 2018 Standard Charted Bank moved in on businessman Habib Kagimu over an allegedly unpaid loan of UGX 9.7b.

Subsequently Standard Charted Bank notified the public of its intention to auction Habib Kagimu’s properties against which the loan had been advanced.  The loan had been advanced to a consortium of companies among them Habib Oil, Habib Properties, Habib Brothers and Eagle Investments Ltd.

A number of upscale properties including a residential house in Kololo others in Bugolobi and Sir Apolo Kaggwa Road, were advertised for auction on the premise that Standard Chartered Bank had failed to recover its money from Hahib Kagimu. However, acting through their lawyers, Muwema &CO Advocates, Habib Kagimu disputed the figures in court stating that Standard Chartered Bank had inflated the value of the loan from UGX 7.7b to UGX 9.7b the case is still in court meanwhile Kagimu’s businesses have nosedived.

Senana Vs Standard Chartered Bank

On September 24 2019, Standard Charted Bank placed an advert in the local press to the effect that Senana properties including a building on Buganda road another in mengo and a warehouse in Busega were to be auctioned to recover a UGX 34 b loan.

The directors of Senana had however on October 16, 2016 through their advocates Kavuma, Kabenge Advocates applied to court seeking to restrain the bank or its agents from selling its properties.

The company had by then challenged the manner under which Standard Chartered Bank was seeking to attach its properties claiming that whereas it had paid off the loan between 2016 and 2017, the bank had continued to send notices that contained false and manipulated amounts. The fate of the case is still unknown.

Alexander Okello Vs Standard Chartered Bank

This is a man who has suffered much at the hands of these marauding banks.

In April last year Standard Chartered Bank sold Okello house to State House. The sale came on the back of a protracted property dispute with businessman Alexander Okello who had lost the property for ‘alleged’ nonpayment of a loan that he had secured using Okello House and advanced to Pioneer Easy Bus Transport Company.

Okello  also lost  another of his properties Amamu House to Barclays Bank which was sold to Stellah Properties.

Sudhir Ruparellia Vs BOU

Bank Of Uganda sued Sudhir Ruparellia over possession of some buildings that formerly housed Crane Bank.

Ruperalia contending that the buildings were not part of Crane Bank. The buildings which are spread in different parts of Uganda had been transferred to DFCU bank following the banks acquisition of some of the assets of Crane Bank and its liabilities.

Bank of Uganda had taken over the buildings as part of the liquidation process of the now defunct Crane Bank. However, court recently declared the take over as illegal over a technicality that a company in receivership cannot be sued.

Sudhir trounced BOU and is now free to enjoy the proceeds of Crane Bank in receivership. He has bounced back and has been listed by Forbes Magazine once again as the richest Ugandan. 

And that is not all, the entire financial sector is littered with a plethora of shenanigans, masquerading as financial advisers who are quick to take advantage of the plight of distressed borrowers, by pretending they can help to identify more user friendly lenders at a fee payable in advance. They take whatever little the distressed borrowers have and string them along without ever coming up with the said lenders.

However, while the banks are getting away with all this, the number of borrowers they have sent to an early grave is un imaginable, the number of business they have driven into the ground In their sole pursuit of profit no matter what is alarming and has caused untold misery and suffering to their borrowers.

Banks as MPS told them to their face last year when they met members of the Uganda Bankers Association are a bunch of thieves. One Member of Parliament after another demonized the Uganda Bankers Association (UBA) as a cartel of thieves who connive to fleece the public.

There was a story recently in the local press where a prominent retired member of the bench complained bitterly how he had been fleeced by his bank manager of his savings amounting to UGX 150m.

There was another story where one local bank tried to connive with the police to repossess his Hotel using fake/outdated court papers. The hotel owner complained loudly that the bank had faked (cooked ) the figures to reflect that his loan had not been fully paid .

Regrettably these banks have continued the discriminatory colonial policies/practices perhaps unwittingly against the natives.

Natives during the colonial period were denied access to long term credit. So they could not borrow to finance their commercial activities. They were relegated by law to the production of primary commodities like coffee and cotton which they were not even allowed to process or market.

Their assets hence lay in the perishable crops they produced and they could not borrow against them because banking regulations then and even now require that in order to borrow you need to secure your borrowing with a fixed asset like a building.

There are other discriminatory practices that space does not allow to go into here but suffice to say that these excluded the native from borrowing from banks.

The banks were for them not for us. The indigenous banks were sailing in forbidden waters and so they had to be hounded out of the market place. Banks like Teefe, ICB, GTB, NBC, UCB, and Greenland etc had to be stopped/closed for sailing in the forbidden waters.

Unfortunately, current financial practices have not changed much from then, many local borrowers are given access to short term credit at un realistically high interest rates which they unfortunately divert to long term projects with disastrous consequences.

Even those borrowers who manage to secure long term finance from these banks, the possibilities of default are very high because of the very high interest rates (28%) and attendant stringent and often eschewed loan conditions they attach to the loans. The banks determine the interest rate, who to lend or who not to lend and there is no appeal. They even reserve the right to call in the entire loan at any time without giving any reasons.

The other day the banks through their umbrella body the Uganda Bankers Association issued a sanctimonious if not rather rambling statement that gave the impression that banks were saints and do not cheat their customers/borrowers.

But as everyone knows this is not true banks cheat their customers on a daily basis through un authorized debits, exorbitant bank charges and high interest rates. They should therefore get off their high horse and stop charging high interest rates stop the mismatch between depositor rates i.e. banks give 4% ON FIXED DEPOSITS AND CHARGE BORROWERS 28%.  IS THAT FAIR?

Abroad banks have several loan packages available to borrowers to choose from like variable interest rate, fixed interest rate or interest only repayment. They even have low start interest rate repayment that allows a borrower to run in their business and start paying higher interest when the business earnings have stabilized. But here we have even payment of interest in advance.

The government needs to give a simple explanation to its citizens why our interest rates are so high and also why such options are not availed to us.

One wonders which business will give a return of over a bank rate of 28% plus to enable one pay back the bank and retain a reasonable profit after tax.

And even when you borrow under those harsh conditions you will still be exposed to the banks unfair, deceptive and abusive malpractices to make it virtually impossible for you to pay back the loan and force you into receivership/liquidation. So that your security can be sold for a song often the bank tipping off their cronies to pick up the bargain if not they themselves or their surrogates.

Is it not ironical that interest rates in the developed countries are far lower than ours here? In the UK for instance the current interest rate on borrowing is 0.5% and has been capped at that level for the next three years.

Ours is hovering at around 28%. Can you imagine what impact an interest rate of 0.5% would have on our economy? Lower interest rates stimulate development and one would have expected a developing country like ours to promote low interest rates in order to stimulate growth and development.

The government needs to set the economic agenda by regulating banking activities and the financial sector more stringently and not leave it solely to the market, the crooks and the shenanigans.

The government needs to bring sanity to the financial services sector to protect its citizens from the marauding practices of these actors.

And if government will not do anything about this then our gallant MPs should do something to rein in these marauding banks by seeking to create a consumer Financial Protection Bureau to protect consumers from the unfair, deceptive and often abusive malpractices.

The banks have often used their very powerful lobby the Uganda Bankers Association (UBA) to literally bully the government, the regulator and borrowers how to run the financial service sector to their advantage.

The courts had of recent come to the rescue of the beleaguered borrowers as recent court rulings reveal such as the Emerald Hotel Case V Barclays Bank, the Eden International School case v East African Development Bank and the Conrad Plaza V Crane Bank in all these cases the courts reversed the unfair sale of the borrowers’ assets and asked the banks not only to return the properties but also compensate them for their highhanded approach.

Unfortunately, this window is fast closing because again the banks through their very powerful lobby have convinced government that an aggrieved borrower cannot be heard in court unless and until he puts down in advance the equivalent of 30% of their borrowing.

The banks have had it too good for too long. It is high time the government stepped in to protect its citizens.

The writer is a financial consultant

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