Three months after it commenced hearings into the closure of seven banks, parliament’s Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) tabled its final report detailing how the law was broken.
The central bank is called out in the report which was read by the outgoing COSASE chairperson, Abdu Katuntu (Bugweri County). The 66-page document points out how Bank of Uganda (BoU) did not follow the law in exercising its powers.
“In all transactions, BoU acted in breach of Section 40(3) of the Bank of Uganda Act which provides that the bank shall not publish or disclose any information regarding the affairs of a financial institution or of a customer of a financial institution unless the consent of the institution or the customer has been obtained,” the report said.
It added “This erroneous act also of- fended the provisions of section 106 (1) of the Financial Institutions Act, 2004”.
Katuntu said the auditor general was not provided with an inventory report on the closure of the banks contrary to Section 89 (3) of the Financial Institutions Act (FIA), which provides that “The Central Bank shall as soon as possible after taking over management of a financial institution, appoint an auditor at the cost of the financial institution to make an inventory of the assets and liabilities of the financial institution and submit a report to the central Bank”.
Further, Section 32 (3) of the FIS, 1993 provides that: “The Central Bank may, in carrying out its duties as receiver, either arrange a merger with another financial institution, in which case the acquiring financial institution will assume all recorded deposit liabilities of the insolvent financial institution or proceed with liquidation of the insolvent financial institution”.
The banks under contention are Teefe Trust Bank, International Credit Bank, Cooperative Bank, Greenland Bank, Global Trust Bank, National Bank of Commerce and Crane Bank Limited. The committee noted that whereas the resolution of financial institutions in distress has been under the BoU’s Supervision department, it is recommended that the mandate of resolving financial institutions in distress be independent of the bank supervision function.
In the case of the recently closed Crane Bank Limited (CBL), Katuntu said it was placed under statutory management on October 20, 2016. The auditors were appointed on October 28, 2016 and the inventory report was produced on January 13, 2017.
“This bank was sold on January 25, 2017. The committee observed that, as it earlier did with other defunct banks, there was no compliance with the requirement of Section 89(3) of the Financial Institutions Act, 2004,” the report said.
As for Teefe Trust Bank, COSASE noted that the auditor general was not availed with an inventory report for Teefe Trust Bank contrary to Section 32 (3) of the Financial Institutions Statute, 1993.
The committee observed that whereas BoU claims that Teefe was closed under the provisions of the Banking Act, 1969 which did not require preparation of an inventory, the closure in November 1993 was carried out under the FIS, 1993 which required the central bank to prepare an inventory as soon as possible after taking over of the financial institution.
Instead, BoU provided a balance sheet, not an inventory for Teefe as required by the law. In the case of the National Bank of Commerce, it was closed and sold on the same day, September 27, 2012. Auditors were appointed on October 17, 2012 and an inventory report was produced on January 15, 2013.
“The takeover and sale of the bank happened on the same day and was concluded within six hours in contravention of Section 99(1) and (2) of the FIA, 2004 which require that the central bank can only intervene after making a winding-up order and publishing the same in newspaper’s for general circulation,” Katuntu said.
The committee further observed that whereas the purchase and asset agreement in the case of Crane Bank Limited clearly states excluded assets and liabilities respectively, there was no indication or schedule for total assets purchased and liabilities assumed by DFCU, the bank which took over Crane Bank.
“The inevitable conclusion, therefore, is that BoU did not know the exact assets and liabilities it was disposing of. The committee noted that whereas the outstanding liability owed to BoU by Crane Bank Limited was Shs 478 billion, DFCU only assumed liability to the extent of Shs 200 billion whose value was to be recovered from the bad books,” the report said.
The committee has recommended that BoU, having failed to value the assets and liabilities of Gold Trust Bank (GTB), National Bank of Commerce (NBC) and Crane Bank Limited (CBL); and considering the lapse of time and impossibility in revaluation of assets, should address the probable financial loss occasioned.
“The committee, there- fore, recommends that all officers of BoU who flouted the law as indicated in the findings of the report should take personal responsibility,” the report said.
WHY THE PROBE
Having received numerous complaints about the closure of commercial banks by the Bank of Uganda vide letter Ref: AB:70/288/01 dated November 28, 2017, COSASE requested the auditor general to undertake a special Audit on the closure of commercial banks by Bank of Uganda.
Section 13(3) of the National Audit Act, 2008, empowers parliament or a minister to request the auditor general to conduct a special audit and to make a special audit report.
In this respect, under section l8 of the Act, the auditor general is empowered to inquire into, examine, investigate and report as he considers necessary, on the expenditure of public monies disbursed, advanced or guaranteed to a private organisation or body in which government has no controlling interest. This report covered seven banks that were closed between 1993 and 2016.
OBJECTIVES
The objectives of the enquiry were to, among others, establish whether proper inventory of the assets and liabilities of the banks was undertaken at closure in line with Section 89(3) of the FIA, 2O04 and Section 32 (3) of the FIS, 1993.
It was also to establish whether the liquidator appropriately managed the sale of assets and accounted for the funds resulting from the sale and whether the receiver appropriately transferred assets under the purchase and assumption agreement.
The inquiry was to further ascertain whether the li- abilities and all the creditors and claims after closure were properly ascertained, recorded and settled. Furthermore, the inquiry was to establish the total cost of liquidation.
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