What Crane Bank takeover means

Thursday October 20 2016
fin001 pix

Former Crane Bank Arua branch. File photo

The

Bank of Uganda takes over Crane Bank

Thursday October 20 2016

carne002 pix

Bank of Uganda has taken over management of Crane Bank and suspended all members of the board.

According to Bank of Uganda governor Emmanuel Mutebile, Crane Bank is under-capitalised and poses systemic risk to the banking sector. However, Mr Mutebile noted that the bank remains open to customers under the management of Bank of Uganda.

“Crane Bank has been on the BOU watch list since September 2015 after regular onsite tests and external audit report. Crane Bank capital had fallen below the 50 per cent legal requirement under the law,” he added.
According to him, Crane Bank is the third largest bank in Uganda.

READ:

BoU disowns Crane Bank sale

Tuesday September 20 2016

homecranepix

KAMPALA- The proprietor of Crane Bank, Mr Sudhir Ruparelia last evening admitted that he hadn’t yet sought Bank of Uganda clearance on the proposed share sale in Uganda’s fourth largest bank by assets.

Mr Sudhir told Daily Monitor that it was “premature” to go to Bank of Uganda for clearance since the shareholders he did not disclose were still discussing with the strategic investor. “It’s premature for us to meet Bank of Uganda,” Mr Sudhir said. “We will meet Bank Uganda after the investors have concluded the due diligence and there should be no cause for alarm because everything will be done at the right time.”

Mr Sudhir was reacting to Bank of Uganda (BOU) statement on the proposed share sale which indicated that the regulator had not yet received any official communication from Crane Bank regarding the sale of shares. In a statement issued on Monday, the BoU revealed for any change shareholding of more than 5 percent, there has to be regulatory approval.

“As of now, the Bank of Uganda has not received any request from Crane Bank to approve a change in shareholding. Should such a request be received, the proposed shareholders will be vetted for “fit and proper” credentials and positively considered if they warrant approval,” said Ms. Christine Alupo, Director Communications at BOU said in a statement.

Ms Alupo, however, said the transfer of shares is common practice in the banking sector.
Crane Bank is currently negotiating with investors to acquire an unknown stake in the bank.

Mr. Sudhir, the Vice Chairman, Crane Bank Ltd, told Daily Monitor on Monday that they were discussing with a strategic investor who would acquire a stake in the bank. He noted that the discussions were bound by a “non-disclosure” clause not to delve into the details, including the partners. It is expected that if the shareholders of the bank and new investors reach an agreement, then BOU will be notified.

According to Section 18 (2) of the Financial Institutions Act, reads that “no financial institution shall, except with the permission of the Central Bank, allot or issue, or register the transfer of five percent or more of any of its shares to one person.”

The section also goes on to point out that permission has to be obtained from BOU in writing. The completion of the sale can only be approved by BOU.

Ownership structure
According to the Crane Bank Annual report for 2015, Mr. Ruparelia has a controlling interest (in terms of voting) of 48.67 percent in the bank by virtue of shares held directly and by close members of his family.

In 2010, he controlled 66.67 percent of the bank but by 2011, this had reduced to 56.67 percent. Since 2012, the shareholding has been at 48.67 per cent.

The other shareholders in the bank are a company called M/S White Sapphire Limited that holds 47.33 per cent stake, Ms. Jitendra Sanghani at 4 per cent and Mr Tom Mugenga at 0.01 per cent.

A company search at the Uganda Registration Services Bureau did not turn up any results for the company named M/S White Sapphire Limited. It is not yet clear who which shareholder is selling their stake in the bank.

Crane Bank has in the past expressed interest to list of the Uganda Securities Exchange, but those plans were put on hold.

Bank performance

Crane Bank turned up one of the worst performances since inception in 2015. The bank turned a net loss of Shs3.3bn in 2015 from a net profit of Shs50.6b in 2014.

This slump was attributed to an increase in Non-performing loans and provisions for bad debts as companies fell back on loan repayments. Since 1997, the bank had been witnessing a consistent upward trend in profit until 2015.

It also ceded third place to Centenary Bank in terms of assets and customer deposits. If approved, this will be second bank to change shareholding in the last two years.

[email protected]

ALSO READ:

Sudhir speaks out on Crane Bank sale

Monday September 19 2016

home02 pic

KAMPALA. The proprietor of Crane Bank Limited, Mr Sudhir Ruparelia, yesterday said he had found a “strategic partner” to buy unspecified shares in Crane bank.
He told this newspaper by phone that the discussions are ongoing, but he is bound by a “non-disclosure” clause not to delve into the details, including the partners.

Defending his decision to sell off some of the bank’s shares, Mr Ruparelia said what they were doing “was a normal transaction” which should not cause any public anxiety or outcry.
Crane Bank is an indigenous bank solely owned by Mr Ruparelia, a businessman with interests in real estate, hospitality and service sectors. It started as a Forex Bureau before transforming 25 years ago into a fully-fledged commercial bank whose profitability, before losses registered last year, drove an ambitious expansion plan with opening of new branches across the country.

Mr Ruparelia stressed that the decision to divest the bank is a normal business transaction and they cannot at the moment disclose further details of the transaction until the deal is sealed.
“Read the press statement of Friday and understand it. Everything is clear; we are talking to strategic partner and we signed a non-disclosure agreement,” he said, adding: “It is not a new thing. If you are buying a property, do you go around talking about it before the deal is concluded?”
Last week, social media was awash with reports about the bank’s imminent sale. The bank’s management a press statement on Friday stating that the financial institution was “strong and sound”.
“Five years ago, the shareholders and board decided to diversify and at that time, the proposal that became public prematurely was the Initial Public Offer (IPO) route. That was a thought process as the branches spread and expansion took root,” the statement read in part. It added: “Two year ago, still with a drive to strengthen the bank, the shareholders and the board decided to get a strategic equity investor preferably with a regional, and even better, continental network,”.

[email protected]


Mr Mutebile further noted that BOU is to conduct an audit on Crane Bank to determine whether the high non-performing loans (NPLs) and bad debts contributed to the capital erosion.

cranepix

Police patrol Crane Bank head office on Kampala road. Police deployed at various branches. Photo by Abubaker Lubowa

In a letter addressed to Crane Bank’s Ag. managing director, Mr PK Gupta and dated October 20 stated: “This is to inform you that Bank of Uganda has, with effect from today 20th 2016, pursuant to Sections 87 (3), 88 (1)(a) & (b) of the Financial Institutions Act 2004, taken over management of Crane Bank Ltd. You are accordingly suspended from your position as Acting Managing Director and you are required to make a formal handover of your responsibilities to the Bank of Uganda Statutory Manager, Mr Edward Katimbo Mugwanya,” read part of the statement signed by Mutebile.
Mr Mutebile further said: “You shall, nonetheless, continue to serve Crane Bank Ltd as a principal support of the Statutory Manager.”

by the Central Bank will have no bearing on the daily operations of Uganda’s fourth largest bank by assets.

Crane Bank, Emmanuel Tumusiime Mutebile, the governor Bank of Uganda (BoU) said on Thursday, was “a significantly undercapitalised institution” but they (BoU) had appointed a statutory manager who would continue running the affairs of the lender without interruptions.

In 2010 the Central Bank revised the minimum capital requirement to Shs25b, below which any bank cannot be allowed to continue operating.

“Crane Bank will remain open and its operations will continue normally, under the management and control of Bank of Uganda,” Mutebile said in a statement issued after the takeover.

The takeover, he said, was not necessarily a closure but the Central Bank would station appointed mangers at the bank’s entire 47 branch to supervise and oversee daily operations until when the bank returns to stability.

This, according to analysts, means that Central Bank, at its discretion, might in future invite potential investors to recapitalise the bank or wholly sale out to an entity or investor that might choose to run the bank in its current form or under a changed entity which might include change of trading name and composition of directorship.

Advertisement

No investor has so far come out to publically express interest in the purchase of or part of the bank.

However, The East African last Thursday reported that Atlas Mara, a financial services company co-founded by Bob Diamond, who until 2012 was Barclays Plc’s chief executive officer and Ashish Thakkar, a businessman of Ugandan Indian origin, were in talks to have a share of the bank but negotiations had been delayed because Crane Bank had refused to write down its balance sheet by Shs60b ($17m).

Crane Bank, The East African reported, was against the move that would bring down its overall valuation from an estimated Shs1 trillion ($300m) closer to Atlas Mara’s target of Shs857b ($250m).

The financial distress that Crane Bank finds itself in, Mutebile said was, in part a result of bad and doubtful loans that could have negatively impacted the bank’s bottom-line.

The Central Bank blamed this on the bank’s top management and the board that were immediately suspended to pave way for an investigation into the alleged mismanagement.

Early this year, Sudhir Ruparelia, Crane Bank’s majority shareholder alluded to the worrying state of the economy, which he said would be a hard knock on the country’s performance indicators.

“Kampala is on sale [properties] but no one is buying. This is bad for the economy,” he said recently at the height of the alleged bid for government to bail out distressed companies.

Police remained deployed at all branches with the Central Bank saying there was no cause for worry.

In a statement issued to all Crane Bank staff, Mutebile urged employees to “render utmost cooperation in the process” as well as support the appointed manager in the smooth takeover.

Under the Financial Institutions Act 2004, the Central Bank has powers to take over a financial institution that fails to smoothly manage its liquidity flow or is involved in fraudulent transactions.

Several banks, including National Bank of Commerce, Global Trust Bank, Teffe Trust Bank, Greenland Bank and International Credit Bank, among others, have been takenover or closed in the last 15 years for failing to adhere to required standards, fraud or falling below minimum capitalisation.

Crane Bank is controlled by Sudhir, who controls 48.67 per cent of voting rights, based on shares held directly and by close members of his family, according to the bank's 2015 financial report.

Other shareholders include White Sapphire Limited (47.33 per cent), Jitendra Sanghani (04.00 per cent) and Tom Mugenga with a 00.01 per cent stake.

The bank was established in 1995, offering corporate and retail banking.

As of December 2015, Crane Bank reported a consolidated pre-tax loss of Shs7.3b compared to Shs57b profit posted by close of 2014.

The bank had also embarked on a fast-paced expansion moving to 47 branches across the country, which analysts said could have stretched its operations.

Last Wednesday the Central Bank had in a statement denied connection with messages that were circulating on social media urging depositors to withdraw their cash ahead of the pending closure of the bank.

Crane Bank also has operations in Rwanda with partner banks in South Sudan.

Advertisement