A leaked Auditor General’s Special Audit report on the Bank of Uganda over the ‘controversial’ closure of seven commercial banks has exposed the rot at the country’s Central Bank.
It should be noted that in a letter dated 28th November 2017, the Parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) requested the Auditor General, John F.S Muwanga to undertake a special audit on the closure of commercial banks by Bank of Uganda.
The seven banks in question include Teefe Bank, International Credit Bank Limited (ICBL), Greenland Bank, The Cooperative Bank, National Bank of Commerce (NBC), Global Trust Bank (GTB) and Crane Bank Limited (CBL).
“I observed that there were no documented guidelines/regulation or policies in place for the identification of the purchasers of the 3 defunct banks (GTB, NBC and CBL) closed using the purchase and assumption arrangement. There were also no guidelines to determine the procedures to be adopted by the Central Bank on the sale/transfer of assets and liabilities of the defunct banks to the identified purchaser. In the absence of guidelines, I could not establish the basis used to select the purchaser and determining the values of assets and liabilities transferred by BOU to the purchaser,” the leaked Auditor General (AG) report reads in part.
The committee specifically requested the Auditor General to provide assurance on; the status of the banks at closure, cost of liquidation, status of assets and liabilities of the aforementioned banks from closure to date, non-performing assets, non-recoverable assets and liquidators.
It is also important to note that Section 11 and 17 of the Financial Institutions Statute (FIS) 1993 and Financial Institutions Act (FIA) 2004 respectively mandate the Central Bank, the regulator of Uganda’s banking sector to revoke a license of a financial Institution if it is satisfied that the financial institution has ceased to carry on business, declared insolvent, gone into liquidation, wound up, undercapitalized or dissolved.
However, the AG says in his August report to Parliament that BoU didn’t avail him crucial some documents on some defunct banks.
“I was not availed with the Inventory report, loan schedules, customer deposit schedules and statements of affairs of Teefe Trust Bank to enable me to fulfill the specific audit objectives. Due to this limitation, I could not assess the status of the assets and liabilities of Teefe Trust Bank from closure to date,” the report further reads.
It adds: “I noted that BOU did not carry out a requisite valuation of assets and liabilities of the three defunct banks (GTB, NBC and CBL) resolved using the purchase and assumption arrangement at the time of signing the P&A. In absence of the valuation and or documented evaluation of alternatives and assumptions used, I could not establish how the terms for the transfer of assets and liabilities in the P&A were determined.”
The report further says that asset movement schedules for Greenland bank, ICB and Cooperative Bank indicating details of assets at closure, assets sold, selling price, period sale, unsold assets, performing and non-performing loans from time of closure to the year 2001 when the liquidation role was outsourced were availed.
However, says the report, for the period starting 2002 when the liquidation role was directly performed by BOU, no asset movement schedules were availed.
“Therefore I could not adequately verify the movement of assets of the 3 banks from UGX 117.6bn at closure to UGX.19.7bn as at 30th June 2016. BOU sold assets worth UGX.164bn of five defunct banks (ICB, Greenland, Cooperative, GTB and NBC). However, it was noted that the assets were sold at a discount of 80% yielding UGX.32bn.
In the case of ICB, Greenland Bank and Cooperative Bank the total loan portfolio sold of UGX.135bn included Secured loans of UGX.34.5bn which had valid, legal or equitable mortgage on the real property and were supported with legal documentation but were sold to Nile River Acquisition Company at 93% discount,” the report says, adding: “Further, it was noted that there was a delay in disposing the assets as the assets were sold in 2007 despite the banks closing in 1998 and 1999.”
The report also reveals that negotiation minutes detailing the evaluation of alternatives and assumptions for the sale of GTB and NBC assets were not provided and as such the AG could not determine the basis for transferring assets at a discount.
According to the Purchase and Assumption agreement signed between BOU and DFCU, clause 1.1.1(ix) provides that all loans and advances of CBL were transferred to DFCU except the insider loans.
The report says at the time of P&A, the non- performing loans (bad book) was UGX.570.38bn out of the gross loans of UGX.1,159bn.
“This bad book was transferred to DFCU to provide a resource for repayment of the assumed liability of UGX.200bn and bridge the shareholder’s deficit of UGX.439.7bn at the date of takeover,” the report says, adding: “I could not establish how the consideration of UGX.200bn was derived from the bad book of UGX.570.38bn. DFCU has so far paid UGX.98.3bn of the UGX.200bn liability.”
Further, the AG, says was not provided with the schedule of loans and the corresponding collateral transferred to DFCU.
“As such I was unable to establish the values and categories of loans transferred (performing loans, non-performing loans and fully provisioned/written off loans (bad book)),” the AG says in his report to Parliament.