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Bad For the Economy: Crane Bank Collapse Leaves Uganda With Only Three Locally Owned Banks

On January27, 2017, the Central Bank of Uganda, the Bank of Uganda (BoU) announced that dfcu had acquired Crane Bank.

It was revealed that dfcu beat off competition from other 12 financial institutions to emerge winner. “… Bank of Uganda has now transferred the liabilities including deposits of Crane bank to Dfcu bank,” Prof. Emmanuel Tumusiime-Mutebile, the Governor, BoU said, adding: “All customers and depositors of Crane Bank shall now have their accounts operated by dfcu Bank through its wide branch network, which will now include some of which were formerly branches of Crane Bank Ltd.”

The transaction costs weren’t revealed. dfcu eventual acquisition of Crane Bank followed the latter’s takeover by BoU on October 20, 2016 after becoming “a significantly undercapitalized institution.”

Prior to its takeover in October 2016, Crane bank had enjoyed 21 years of uninterrupted and tremendous growth. It was not only the leading indigenous bank, but it was also among the three systemically important banks. The others are Stanbic and Standard Chartered Bank.

A systemically important bank is one whose failure might trigger a financial crisis. They are colloquially referred to as “too big to fail”.

The bank’s takeover came on the backdrop of poor performance in 2015; Crane Bank shockingly recorded a whooping loss of Shs3.1bn in 2015, down from a net profit of Shs50.6bn in 2014.

This was a result of high Non-Performing Loans (NPLs) that increased by 122.9% in 2015. The bank’s NPLs increased to Shs142.3bn in 2015, up from Shs19.36bn in 2014.

However, how and why the bank became significantly undercapitalized in a space of less than a year remains a big puzzle.

With 48.7% stake, defunct Crane Bank was largely owned by Sudhir Ruparelia and his family. Under the shareholding structure, Sudhir Ruparelia owned 28.83% of the shares in the bank.

His wife, Jyotsna Ruparelia owned 13.8% of the shares in the bank, while their three children; Sheena Ruparelia, Meera Ruparelia and Rajiv Ruparelia owned 1.99% shares each.

Meanwhile, mysterious M/s White Sapphire owned 47.33% stake in the bank, while Tom Mugenga, a renowned businessman in Uganda owned 0.003% shares in Crane bank.

Why Crane Bank Fall is bad for Economy

It is important to note that a strong banking sector plays a crucial role in the economic development of the country. Analysts say local banks are even more important in the growth of an economy.

If the economy is dominated by foreign banks, some laws like capping interest rates like it was done in Kenya in 2016 may not be applicable for you (the host economy) will be dancing on their tunes.

The demise of Crane Bank, a once strong and sound indigenous bank means that Uganda’s banking sector is largely dominated by foreign banks.

Crane Bank

Out of now the 24 operating banks, only three can be considered indigenous.  These include Centenary, Housing Finance and Finance Trust.

Centenary Bank is largely owned by the Roman Catholic Dioceses of Uganda who control 38.5% shareholding, followed by the Uganda Roman Catholic Secretariat at 31.3% and Stitching Hivos-Triodos Fonds at 18.3%.

SIDI has 11.6% shares in Centenary bank while Ugandan individuals own 0.3% of the bank. Finance Trust Bank is 55.4% owned by Ugandans (Uganda Women’s Finance Trust -29.8%, Ugandan Women Entrepreneurs-13.5% andSun Mutual Cooperative Society-12.1%).

The remaining shares are owned by Netherlands based Oikocredit (24.1%) and France based Investment & Partner (20.5%).

On the other hand, Housing Finance Bank is 50% owned by the National Social Security Fund (Uganda).

The government of Uganda, through the Ministry of Finance, Planning and Economic Development (Uganda), owns 45% in Housing Finance.

The remaining 5% is owned by the National Housing and Construction Company, a parastatal company jointly owned by the government of Uganda (51%) and the government of Libya (49%).

Although with indigenous roots, dfcu that took over Crane Bank is now foreign owned. It is 27.54% owned by Norfund, a Norwegian development agency, while Dutch based Rabobank owns 27.54%.

UK based CDC Group Plc owns 15% in DFCU. Locally, NSSF owns the highest shares in dfcu (5.93). The remaining shares are owned by both local and international institution investors and individuals.

Shockingly, neighbouring Kenya has more banks operating in Uganda than the host country; ABC, Diamond Trust Bank, KCB, Equity, NC Bank, Commercial Bank of Africa and Bank of Africa are all from Kenya.

It is important to note that although foreign owned banks pay taxes and employ many Ugandans, they are at liberty to repatriate the profits to their mother countries especially after paying the 30% corporation tax.

Other foreign owned banks saving the Ugandan economy include Ecobank, Orient, Guaranty Trust Bank, Citibank, Cairo International Bank (CIB), Bank of Baroda, Bank of India, Uganda United Bank for Africa, Stanbic Bank, Standard Chartered, Tropical Bank, Exim Bank and Barclays Bank.

History of Uganda’s Failed Banks

Crane Bank is not the first indigenous bank to go under. In 2012, BoU took over the management of National Bank of Commerce, also known as Kigezi Bank.

Its assets and liabilities were sold to Crane Bank that has also collapsed. Importantly, in 1990s and early 2000, Uganda’s banking crisis saw many indigenous banks become insolvent and collapse.

A number of banks were taken over by BoU before they were eventually either sold to the foreign banks or liquidated.

Assets of Co-operative Bank that was mainly for farmers were sold to Standard Bank, Greenland Bank was liquidated, Teefe Bank and Gold Trust Bank were closed.

International Credit Bank was also closed. Uganda Commercial Bank was sold to Stanbic while Barclays Bank acquired Nile Bank Uganda Limited in 2007. Financial indiscipline and misstatement have been cited as key factors for the above failed banks.

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