BoU’s takeover of Crane Bank, 20 years after Greenland Bank closure

Thursday September 20 2018

Karoli Ssemogerere

Karoli Ssemogerere 

By Karoli Ssemogerere

This week, The Observer made available again a 10-year-old interview of Dr Suleiman Kiggundu narrating the details of the closure of Greenland Bank in April 1999 after an unprecedented run on the bank. This week also marks one year after BoU took over Crane Bank and sold its assets to dfcu Bank.

Crane Bank, Greenland Bank, Cooperative Bank and International Credit Bank were all indigenous banks with an extensive domestic branch network. Sembule Bank and Nile Bank had slightly better fortunes. Sembule Investment Bank went through two major transactions and now trades as Bank of Africa. Nile Bank was sold to Barclays before mostly being written off as a loss.

Resolution of banks is a very costly exercise which comes at the end of lengthy audits, stress tests and the ultimate final test of whether the bank can meet its daily cash demands to depositors. Deposits are a liability on the bank, bank loans are assets. Higher deposits without sufficient income can be a problem for the bank as insider loans, which carry higher risk due to lower standards for due diligence, are questionable assets on a bank’s balance sheet.

Dr Kiggundu went to his grave pleading innocence, that he was torpedoed from a second successful career in banking. He pleaded that the insider loans whose details remain undisclosed were all performing. He also made a tenacious case that the Greenland-Westmont loan secured by a 49 per cent UCB shareholder’s certificate, was a secure loan attacking the government’s position at the time that the real character of the transaction was a backdoor capitalisation of Greenland Bank using UCB’s deposits.

Dr Kiggundu, one of the nation’s brightest of his era, however, touches on something more important, that people “above” were uncomfortable with his continued stay at Greenland Bank. Like the latter day Sudhir Ruparelia, he was far too ambitious for a small country Uganda.
Mr Ruparelia, who for the most part assiduously assumed key parts of Greenland’s DNA, assembling the cream of the political class, influence peddlers in their loan books at the time of closure had reached the nadir of his career.

Glossy profiles in Forbes, etc., a quiet ruthlessness that would bring borrowers to his knees, and a vivacious personality, made him top billing who wanted to share in his fame. The collapse of these banks deprived the local economy of a sprinkler effect as most income they generated was spent locally. Of the big five banks, just Stanbic and dfcu are listed locally and the local retail holdings are very small. Safaricom Kenya’s largest wireless operator has 30,000 shareholders.

Banks are reorganised at great cost. Most assets are written off at great discount. Collection agencies buy up the zombie loans at cents on the dollar and continue to collect on these loans with all the legal protections afforded them by the Central Bank.
A purchaser bank can throw back a loan into the non-performing file if it realises just like Sudhir and Kiggundu realised that some loans were too big to pay back. Bank of Uganda has succeeded in keeping a lid on any meaningful information of those explosive loans some of which were targeted for a bailout on the bank’s own money.

In Kenya, the Deposit Insurance Corporation has been directly going after originators and holders of these untouchable loans harvesting their biggest catch, the Deputy Chief Justice Philomena Mwilu.
In Uganda, it is said some of these loans are secured by questionable titles some of which once belonged to the State. Others carry collateral obligations by Uganda to assure market, absorb products or supply tangibles like land and tax holidays.
The foreign angle, on who ideally should own the bank, is part of the sovereignty issue in Uganda. IMF, China are all having their say in Uganda and the entire African continent.

Mr Ssemogerere is an attorney-at-Law and an advocate. [email protected]