BoU officials contradict each other over asset reports for closed banks

Probe. Bank of Uganda officials were on Tuesday grilled on how the value of assets of three closed commercial banks was reduced from Shs117b to Shs98b after the Central Bank took over the liquidation. Governor Emmanuel Tumusiime-Mutebile contradicted his official, Mr Benedict Ssekabira, the director of Financial Markets Development Coordination, and Mr Katimbo Mugwanya, a BoU official, who had told MPs that they filed liquidation reports about the three banks. The BoU team was testifying before the Parliamentary Committee on Statutory Authorities, and State Enterprises (Cosase), which is investigating alleged irregularities in the closure of seven commercial banks by the Central Bank.
The committee tasked BoU to produce the liquidation reports, which show movement of assets of the closed banks to subsequent owners. Mr Mutebile said BoU does not have the reports, although some of his officials had said the reports existed and had been handed over to the Central Bank. Solomon Arinaitwe covered the proceedings and brings you the highlights.

Tumubweine Twinemanzi (director of supervision, BoU): Query 2:3:1 refers to the period when the Central Bank was the liquidator. The query is that starting 2002, when the liquidation role was performed by BoU, no detailed assets movements schedule or ledgers indicating assets at closure, sold, selling price, period of sale, assets not sold, performing and non-performing loans, was provided to support asset movements in the statement of affairs for the three closed banks.

Although the statement of affairs as at June 30, 2016, indicated that all the physical loans and customer assets had been sold, BoU records indicate that the liquidator did not sell all the assets previously owned by Co-operative Bank. According to BoU, the titles are still in the custody of the Central Bank. Because of the incomplete asset movement schedules, [the Auditor General] was not able to verify the movement of assets from Shs117b at closure to Shs19b as stated in the statement of affairs of June 30,2016.

The response at the time of BoU [takeover] was that we undertake to provide a full list of all the recoveries made against loans from the three commercial banks. The three title deeds for Co-operative Bank were not sold because of ownership disputes between the bank and the sitting tenant in Masindi and the three roads in Kampala were just roads connecting other plots that were sub-divided from another piece of land.

BoU avers that the information shared with the office of the AG, especially as relates to loans and advances which were the majority of the assets of these banks, indicates what the balances were at closure, recoveries made, and interest accrued and outstanding balances. We think, in our opinion, that is adequate to explain the movement of assets.
Abdu Katuntu [Committee chairman]: The Auditor General is saying that during the period when the role of liquidation was being performed by others, there were regular reports up to 2002 and they accessed those reports, I guess, by KPMG. In those reports, you could be able to see movement of assets. When BoU directly took over, those reports are not there. Now that those reports are not there, the AG could not verify the movement of assets. Why are there no reports during the time you are managing the process of liquidation of assets?

Benedict Ssekabira [Director of financial markets development coordination]: Indeed there are no reports but I will have to explain why. ICB was closed in September 1998. KPMG, who was appointed as a liquidator agent by BoU, submitted a report only once throughout that time. That final report is dated September 30, 2001.

There was no frequency of reporting from KPMG. Similarly, under Co-operative Bank, KPMG also reported only once in August 2001 and that was their exit report. In Greenland Bank, Delloite Touché were engaged from day 1. The issues in Greenland were heavier and more challenging. As for the terms of their engagement, they were required to issue frequent reports. That is why you see frequent reports from the Central Bank. In KPMG where frequent reporting was not required, they sat in there and only did reports when it was required. These are the differences that existed. Following the takeover by BoU, which happened in 2001, BoU did not want to report to itself because at that time, BoU was in charge of the liquidation and being in charge, it would not issue a report to itself.

What we did was to appoint auditors in 2002 to audit the situations in 2002. Indeed there is a statement of affairs for each bank that was submitted to this Committee. Different auditors did audits on different banks under liquidation in 2002 because it is expensive to do audits every year. In 2005, another audit was done and after that audit, so many things were done like distribution of liquidation proceeds. This is the situation.

Katuntu: Internally, which department was handling this particular exercise?

Ssekabira: The Bank supervision department was handling this.

Katuntu: Which organ of the bank was it reporting to?

Sekabira: It reports to the Governor.

Katuntu: Where are these reports to the governor saying we are doing this and this is the status? You must account. Every department of the bank should be able to account either to the governor or the board. Do we have any reports to the governor’s office or to the board?

Tumubweine: Someone is always appointed through the bank to handle.

Katuntu: And that person should be able to report to the Governor and that is what we want. Do you give somebody a job to do for four years and there is no reporting mechanism.
Michael Tusiime [Mbarara Municipality MP]: The liquidator is here with us. The person who was given mandate and even paid an allowance is here with us- Mr Sekabira.

Katuntu: Did you have reports to the bank on this process? One of the audit objectives of the Auditor General was to establish whether the liquidator appropriately managed the sale of the assets, accounted for the funds resulting from the sale and whether the receiver appropriately managed the transfer of the assets. We are looking at the management of this process and whether it was managed appropriately. There are no reports. Was it correct to have a liquidator without reports?

Moses Kasibante [Rubaga South MP]: To emphasise the point, there must be a reporting mechanism. We are blessed to have the horse itself, the governor. Let us get it from the horse’s mouth. The governor and his deputy should tell us whether he got reports from the liquidator.

Tumusiime Mutebile: I am sorry I do not remember receiving any reports about this matter.

Katuntu: Under general laws of liquidation, you need to have reports because the assets you are dealing with are not yours. You have taken over assets of another institution, so the way you manage them, you must have an accounting mechanism.

Ssekabira: The liquidator of closed banks has never been Ssekabira and that should be corrected. The liquidator for all closed banks has always been the Central Bank. Even when you see KPMG and Deloitte Touché, they have never been liquidators. They are agents of BoU. It is true that the governor may not have received the reports because Ssekabira does not report to the governor.

Ssekabira was appointed as an agent of the liquidator and was reporting to somebody far below the governor. Those reports exist. The process of liquidation that we were using at the time would not leave you with a lot of authority either as a liquidator or an agent. You would not sit where we were sitting at Greenland Towers and have a lot of authority. Everything was done by the Central Bank.

For example, if a debtor wanted to pay off their loan, they would not come at my desk to pay. The money would be taken to the Central Bank and paid and someone who has paid would come to me and say I have paid this money, can I be discharged. I would verify and take the process to release a title, for example. There was not a lot of authority given to the liquidator.

Katuntu: You said there were no reports and you said you are under oath and, therefore, telling us the truth. Now you are saying there are reports which is a contradiction. That is why members are wondering what you are talking about. If those reports were there, you should have produced those reports because the query is saying there are no reports. We want to know the asset movement schedule from Shs117b to Shs19b. Do we have documentation to show movement of these assets?

Mutebile: Mr Ssekabira said he had no reports to me because he was too far from me. He did not say which person that was. Who is this person whom he is not naming?

Ssekabira: It was Mr Apollo Obbo, Ms Margaret Matovu and Ms Justine Bagyenda.

(The three appeared before the committee yesterday)