What is all this ‘noise’ around dfcu?

Addressing contractors in Kampala early this week, Mr Godfrey Mundua, the dfcu head of corporate banking, said the bank has the capability to support both brown and green field projects. FILE PHOTO

What you need to know:

  • Bad press. Dfcu has for more than a year been trolled by bad press, which some officials believe is sponsored by individuals they decline to mention.

Kampala. On July 6, Sam Kasirye, a long time friend, who now works in Dar el Salam, Tanzania in boxed me through Facebook with an ear-raising concern.
“Is dfcu in trouble? I was about to open an account naye ntidemu (but I now fear),” he said before I tried to contact my sources to come up with a proper explanation.
Of course as a journalist, I would not just discount his concern. I had to get a proper understanding of what was happening.
I have known Kasirye for close to 20 years. And as a childhood friend, I would read the urgency in his chat.

He had together with his wife, Rachel, through a mutual friend, been processing details to open an investment club account at dfcu.
“I no longer trust Ugandan banks. Some seem to have a lot of problems and the regulator seems to be weak to put them in line,” he said.
On its part, dfcu has had a good share of bad press, some of which is true and majority false.
Therefore, Kasirye could have been right to get concerned.
To tell the truth, I had no sufficient answer at the time but I promised him I would engage different stakeholders to understand what the “noise” was all about.

To put it plainly, dfcu finds itself in a difficult position having to contain bad press from a well-organised coterie of attackers.
The onslaught seems to be well coordinated peppered by journalists (on social media, tabloid and mainstream press and online publishers), politicians and bankers who seem to be organised around a certain agenda.
True, dfcu has had its own troubles such as the recent failure of its EFT (electronic funds transfer) payment system and misconduct. But officials maintain there is an organised agenda to harvest more from non issues, which are blown out of proportion to mislead the public.

For instance, statements including an outrageous claim that the bank “was having a liquidity (money) crisis”, have been attributed to key officials from dfcu yet they are allegedly conceived by a group of people and circulated by online publishers.
At the weekend, Elly Karuhanga, the dfcu Group chairman told Daily Monitor they are investigating the source of this propaganda to understand what it seeks to achieve.

“This is a big challenge to us and the banking industry. We are consulting our lawyers for possible legal action against [the purveyors] bent on spreading this false news,” he said.
In a public notice at the weekend dfcu, also pointed to “malicious rumours” in regard to the exit of one of its long term shareholders – CDC - and the resignation of a board member – Malik Deepak - who had been one of the four Arise BV representative on the dfcu Group board.
“Dfcu has become aware of several inaccurate reports … these alarmist rumours have been perpetrated and coordinated by certain person(s) with the intent to discredit dfcu and its successful acquisition of some assets and assumption of some liabilities of Crane Bank,” the statement reads in part.

To understand the current crux, according to sources, you must look at dfcu’s takeover of Crane Bank in its entirety.
Multiple sources within and outside dfcu interviewed for this article, who asked to remain anonymous to speak freely, point fingers at some former directors and associates of the now defunct Crane Bank as the people whiffing the negative propaganda.
Daily Monitor could not independently verify the claims.
However, Sudhir Ruparelia, the former Crane Bank vice chairman and a key figure in the bank’s functionary, denied the claims, saying the accusers are spreading false rumours.

He said neither him nor any former Crane Bank directors can involve themselves in such.
“Let them bring evidence and not [depend] on heresy [to accuse former directors]. These are [just but] rumours,” he said.
Last Friday, online publishers reported the bank had been thrown into a “leadership crisis” with the resignation of William Sekabembe, the dfcu executive director.
It had been reported that Sekabembe had resigned to join another bank. However, in an interview he dismissed the claims calling the allegations “fake news.”

“This is not good for the economy. Dfcu is the second largest bank in Uganda and the impact this fake news will create for the industry is dire. These people [spreading the fake news] need to get serious,” he said.
Louis Kasekende, the Bank of Uganda deputy governor, told Daily Monitor about a week ago there was no justification for the “noise”, especially in regard to the exit of CDC.
“Selling shares is a usual thing. Why should it become a serious concern? As far as we are concerned dfcu is a sound. The public must not be alarmed,” he said.

However, according to Fred Muhumuza, an economist, dfcu finds itself in a difficult position given that no amount of assurance from the Central Bank will reassure the public amid such rumours.
The Central Bank’s credibly, he said, has been badly scared with the Crane Bank saga and it is only dfcu that will counter the onslaught.
“The problem now is a regulatory regime that has lost credibility. Dfcu must toughen up in this era of fake news,” he said.
As of December 2017, dfcu was the second-largest bank in Uganda, with an asset base of Shs3.03 trillion ($821.6m) and shareholders’ equity (debt) of Shs508.8b ($138m).

The bank posted Shs114b in profit for the year ended December 31, 2017 but recorded growth in non-performing loans, majority of which were adopted from the Crane Bank toxic loan book.
Beyond the current bad press that has sucked in different intuitions and individuals such as Bank of Uganda and Justine Bagyenda, the former Central Bank director for supervision, according to sources, are issues that emerged during and after the negotiations to sell Crane Bank.
During the negotiations, 13 financial institutions had shown interest in Crane Bank which at the time was Uganda’s third largest.

The negotiations, sources say, yielded unresolved issues, which as some have indicated gave Crane Bank directors “a take or leave it deal”.
“They must have felt squeezed out. But since they were already in a box they could not say no,” a source said.
For instance, the source added, the directors felt it was unfair for the Central Bank to lease former Crane Bank branches to dfcu even when they are owned by a different entity, Crane Management Services.

The properties, which some say were constructed using Crane Bank money, where leased to dfcu for a period not less than five years.
In there, according to sources, is the issue of about Shs165b and $60m (Shs229b) that was lost due to insider trading and fraud, respectively.
The money, people familiar with the matter say, is expected to be recovered from former Crane Bank directors and close associates.
Sudhir Ruparelia declined to comment on this matter, saying: “This is all I have to say”, after dismissing claims of fanning dfcu’s false news.
Sources say, the Central Bank insists the money which was lost through fraud specifically when A R Kalan, the then Crane Bank managing director, fled the country, must be recovered.
This, among other issues, some of which are in court, seems to be the key departure point and could be key to some extent in explaining the current animosity.

Ownership

Dfcu is listed on the Uganda Securities Exchange. At 57.81 per cent, Arise BV is the majority shareholder followed by CDC Group (9.97 per cent) which announced it would be existing to allow entry of other investors.
NSSF, which owns 7.69 per cent and Bank of Uganda Staff Retirement Benefits Scheme (0.59 per cent) are some of the Ugandan institutional investors.
Other Ugandans own a share of the bank through the 11.19 per cent stake listed through the stock exchange.

Their take
"The immediate casualty is investor confidence. The credibility of regulation has run down [and this is a problem in itself],” Gideon Badagawa, Private sector foundation Uganda executive director.

"The problem now is a regulatory regime that has lost credibility. The only way you can stop people from running on a bank now is by assuring them that you have money. Dfcu must toughen up in this era of fake news,” Fred Muhumuza Economist and Makerere University Lecturer.

“Let them bring evidence and not [depend] on heresy [to accuse former Crane Bank directors]. These are [just but] rumours,” Sudhir Ruparelia, former Crane Bank vice chairman

Additional reporting by Dorothy Nakaweesi