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Kasaija, Bantariza say economy safe as Crane bank takeover boomerangs

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Deputy Government Spokesperson Shaban Bantariza says the country’s economy is safe contrary to reports by experts who say the economy is on its knees.

According to Bantariza, Crane Bank is a crack but doesn’t mean the house (Uganda) will collapse.

“Any country’s economy is like a business. No business operates without setbacks. Our economy is safe and sound.”

Crane Bank, one of over 20 banks operating in Uganda, was last week taken over by the Central Bank or Bank of Uganda [BoU] citing management hitches.

BoU director of communications, Christine Alupo, BoU said the financial sector as a whole was stable, sound and resilient.

Bantariza too says International Monetary Fund [IMF] and World Bank “all say our economy is safe and sound”.

The trouble with the economy

Crane Bank was apparently accused of flouting corporate governance and management rules and that capital erosion was due to provision for high NPLs; prohibited insider loans; and misstatement of Bank’s financial position due to failure to follow proper accounting standards.

To the contrary, inside sources say the bank received clean bills of health from auditors, wondering why the Central Bank did not take action long ago if it found the financial institution’s accounts lacking integrity.

This puts the central bank on spot for failing to manage the failing economy and instead using Crane bank’s liquidity problems as an excuse.

Crane bank gave out loans to most of the real estate, mining, manufacturing, hospitality and agro-processing companies that were seeking to be bailed out by government.

They include; Club Silk which got a Shs5bn loan from Crane Bank, AZK Enterprises (Shs1.2bn), Franco Ssonko (Shs 3.5bn), Hooray Investments Holdings (Shs 120bn), Shumuk Aluminum Industries Ltd (Shs 17bn), and Sebei Cooperative (Shs 500m).

These companies failed to service their loans due to the fall in real estate, low profitability, poor performance of the economy and high interest rates.

Due to this recession, for example, Steel Rolling Mills Ltd failed to pay Shs 75bn from Standard Chartered Bank, Steel & Tube Company also failed to pay Shs 99bn from Stanchart and Bank of Africa while Shumuk Aluminium Industries failed to pay back a loan of Shs 8.2bn from DFCU bank; Shs 6.6bn from Baroda Bank and Shs 17bn from Crane Bank.

According to Crane Bank officials, the big companies’ challenges directly affect the profitability and performance of its lenders.

Other companies attribute their failure to the depreciation of the shilling against the United States Dollar which started in early 2014 continued through June 2015, with the shilling depreciating by 1.8 percent year-on-year on a trade weighted basis and by 29.1 percent against the USD to an average mid-rate of Shs3, 398.49 per USD.

The depreciation pressures were largely driven by the continued global strengthening of USD; continued weakening of the current account deficit; reduction in Foreign Direct Investment (FDI) inflows on account of deferred investments in the oil sectors because of low global oil prices; net portfolio outflows and elevated demand for foreign exchange from the key sectors of the economy including energy manufacturing and offshore players; and bearish sentiments in the foreign exchange market and the South Sudan war.

Takeover backfires

Meanwhile, BoU’s take over management of Crane Bank, the third largest financial institution in the country, has since affected the trust citizens had in the country’s financial sector.

According to a confidential report, billions of shillings had been hurriedly withdrawn from Crane Bank in what appears to be a loss of trust in the new management.

According to the report, people are worried of their savings and the deposits are shrinking very fast.

Although BoU promised to continue to protect depositors’ interests and maintain the stability of the financial sector, what is currently happening at Crane bank suggests the opposite.

The central bank also took over Crane bank at a time when the institution was about to announce a potential investor.

Minister Kasaija speaks

In defence, Finance minister Matia Kasaijja, says government had information that Crane Bank was not performing well and had so many non-performing loans.

He said former board chairman and proprietor of Crane Bank, Sudhir Ruparelia was told to inject more money in the bank and couldn’t hence the take takeover by Bank of Uganda, government has said.

“I don’t know what happened but the bank was doing well until 2014 when its performance started declining. It had made profits of about Shs47.5 billion. I don’t know what happened after 2014,” the minister said on Tuesday during the Uganda Bankers’ Association breakfast meeting in Kampala.

As such, the Central Bank “has been engaging Crane Bank to take corrective steps since last year; and Crane Management and shareholders fell short”.

Crane bank already had an investor

Crane bank officials on the other hand, say several investors were interested they wanted one with strong potential to consolidate their network expansion with the view of extending services to the indigenous businessmen and farmers in upcountry areas.

They accuse BoU of being impatient and failing to provide capital at low rates to keep Crane Bank strong during the liquidity squeeze triggered by non-performing loans to indigenous businessmen.

“Bank of Uganda itself has been making losses for three years in a row. How can its leadership be trusted at Crane Bank? People deposit money in banks basing on three things: – trust of shareholders, directors and management,” said a former banking officer.

The former banker says even for bigger banks; 85 percent of their profits are bank charges. The profits are repatriated back home.

“And they don’t invest in our farmers like Crane Bank. Why take a man down who is trying to give indigenous people ability to grow and create greatness?”

Meanwhile, Foreign Affairs Minister Sam Kutesa, while attending the wedding reception of Sheena Ruparelia said government will support Sudhir as much as he has supported them.

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