Officials from the Bank of Uganda (BoU) yesterday found a difficult time explaining they hired external lawyers who are directors in different commercial banks as their legal advisors.
The officials led by Governor Emmanuel Tumusiime Mutebile and Deputy Governor Louis Kasekende on Tuesday returned before the committee on Commissions, Statutory Authorities and State Enterprises (COSASE).
Chaired by Bugweri County MP Abdu Katuntu, the committee is investigating circumstances under which the Central Bank closed and sold seven commercial banks between 1993 and 2016 as highlighted in the 2017 forensic audit report by the Auditor General.
As the committee concluded its inquiry into the closure of National Bank of Commerce (NBC) in 2012, Mbarara Municipality MP Michael Tusiime accused BoU of abdicating its regulatory mandate and handed it to directors of commercial banks to determine the fate of other financial institutions that were in business competition with banks they represent.
On Monday, COSASE learnt that the negotiations for the sale of NBC had been conducted by a team consisting of the former Executive Director Supervision Justine Bagyenda, Central Bank Legal Counsel Margaret Kaggwa, external lawyer from Max Advocates Timothy Kanyelezi Masembe and former Crane Bank Managing Director A. R. Kalani.
MP Tusiime questioned the advisory role of lawyer Masembe from Max Advocates saying that a list of directors of different commercial banks indicates that he is the Board Chairman of NCB.
Masembe is a partner in Max Advocates together with lawyer Apollo Nelson Makubuya who is Board Chairman of Equity Bank and lawyer Moses Adriko is on the board of Standard Chartered Bank.
Tusiime says that their participation in the negotiations leading to the sale of NBC is contrary to section 54 of the Financial Institutions Act that bars conflict of interest.
When asked by COSASE Chairperson Abdu Katuntu whether Central bank has directors of commercial banks as their legal advisors, the Executive Director Supervision Twinemanzi Tumubweine and Legal Counsel Margaret Kaggwa confirmed that it was true.
Further asked whether the action was correct for the regulator bank to have directors of commercial banks as their advisors, Kaggwa said that before the external lawyers are hired, they are asked to declare their conflict of interest. However, Katuntu disagreed with her submission.
Other than lawyers, Katuntu asked whether there are other commercial bank directors offering professional work to the Central Bank. However, Mutebile asked for more time to get answers and return with a comprehensive response to the committee tomorrow.
Meanwhile, former Executive Director Supervision Justine Bagyenda defended a decision to sell NBC secured loans at a discount of 30 percent. MPs had tasked her to explain how the discount was arrived at.
Bagyenda said that as at 8th September 2012 the non-performing loan portfolio of NBC stood at 35.98 percent and that they closed the bank on 27th September 2012.
She said that looking at the loan values; they determined that given that nonperforming loans stood at 35.98 percent, the performing loans going forward would have a likelihood of going into nonperforming status.