COSASE Report: BoU pitted for Closure of 7 Banks, Police Ordered to Act On Individuals

KAMPALA, Uganda: All Bank of Uganda officials who failed to properly execute their duties in accordance with the law should be held responsible for their commissions and/or omissions, the COSASE probe has ordered.

The report was tabled to the floor of Parliament on Thursday by the outgoing COSASE chairperson Hon. Abdu Katuntu. Speaker of Parliament, Rt. Hon. Rebecca Kadaga chaired the session.

Presenting the 66-page report to parliament, Katuntu also said the committee had recommended that BoU should rectify the error on the Greenland Bank’s statement of Affairs for proper financial reporting and take full responsibility for any probable loss to Greenland Bank.

The committee also concluded that the transaction between BoU and M/s Octavian Advisors Plc and her agents lacked transparency and the officers involved should be held responsible for commissions and omissions which resulted in not marshaling the greatest amount from the assets of the distressed financial institutions.

Background to the COSASE Probe

Having received numerous complaints about the closure of commercial banks by the Bank of Uganda vide letter Ref:AB:70/2gg/01 dated 28th November 2017, the committee on commissions, State Authorities and State Enterprises (COSASE) requested the Auditor General to undertake a special audit on the closure of commercial banks by Bank of Uganda. section 13 (3) of the National Audit Act, 20008 empowers parliament or the Minister to request the Auditor General to conduct a special audit and to make a special audit report.

The Auditor General is empowered to inquire into, examine, investigate and report as he considers necessary, on the expenditure of public monies disbursed, advanced or guaranteed to a private organization or body in which Government has no controlling interest.

This report covers a total of seven (7) defunct banks that were closed during the period 7993 to 2Ot6. These banks include:-

1 . Teefe Trust Bank, International Credit Bank, Cooperative Bank, Greenland Bank, Global Trust Bank Uganda, National Bank of Commerce and Crane Bank Limited.

The objective of the investigation was to: To establish whether the proper inventory of the assets and liabilities of the banks was undertaken at closure in line with section 89 (3) of the FIA, 2O04 and section 32 (3) of the FIS, 1993

2. To establish whether the Liquidator appropriately managed the sale of assets and accounted for the funds resulting from the sale and whether the Receiver appropriately transferred assets under the purchase and Assumption Agreement
3. To ascertain whether the liabilities and all the creditors, claims after the closure was properly ascertained, recorded and settled
4. To ascertain whether the funds from the DPF/DIS were properly used to settle insured deposits of closed banks
5. To establish the total cost of liquidation of the defunct banks
6. To establish whether the statutory Managers performed the functions in line with the FIS 1993 and FIA, 2004 and ascertain the total cost incurred by BoU during the intervention period.
7. To carry out any procedures that may be appropriate in the circumstances

Whom did the Probe Committee interface with?

During the probe, the Committee interfaced with the following

– Board, Management and retired officers of the Bank of Uganda.

– Shareholders and former Board members of the defunct banks except for Teefe Trust Bank

-Hon. Matia Kasaija, Minister of Finance, Planning and Economic Development

-Ms. J.N. Kirkland Associates Ms.

-SIL Investments Ltd

-DFCU Bank Ltd

-MMAKS Advocates

-Uganda Registration Services Bureau (URSB)

-Mr. Chris Tushabe, Mr. Ssekiziyivu Mr. Bitwire Mr. Charles Owor, former Corporation Secretary, Cooperative Bank Ltd, and Uganda Cooperative Alliance Members.

Key findings

Teffe and International Credit Bank

The committee told Parliament that like for the case of Teefe Trust Bank specifically the inventory report, loan schedules, customer deposit schedules, statement of affairs and reports supporting assets and liabilities taken over by BoU was not availed to the Auditor General by BoU, and as a result the AG  could not fu1fil the specific audit objectives. Similarly, no inventory report was availed for the closed International Credit Bank (ICB). This the committee said was contrary to section 32 (3) of the FIS, 1993.

Hon. Abdu Katuntu said Inventory reports were availed in respect of Greenland Bank, cooperative k, Global Trust Bank, National Bank of Commerce and Crane Bank Ltd.

Co-operative Bank Limited

The Bank was closed on the 19ft day of May 1999. The date for the Auditors’ appointment was not ascertained by the Committee but a report was issued in June 1999. considering that a report was availed in June i999, a month after closure, the committee observes that there was compliance with the requirement of Section 32 (3) of the FIS, 1993

Greenland Bank Limited:

The Bank was closed on the 1st day of April 1999. The Auditors were appointed on the same day and an inventory report was produced in July 1999. The Committee observed that there was compliance with the requirement of Section 32(3) of the FIS, 1993

National Bank of Commerce:

The Bank was closed and sold on the same day, 2Z September 2012. The Auditors were appointed on 17^th October 2012 and an inventory report was produced on 15^th January 2013. The committee ruled that there was noncompliance with the requirement of section 89 (3) of the FIA, 2004. Without the inventory report, BoU would not ascertain the value of what it took over and sold.

Members should note that the takeover of National Bank of Commerce happened on the same day and concluded with a record six hours, which the committee said contravened sections 99 (1) and (2) of the FIA, 2004.

Global Trust Bank (U) Limited

The Bank was closed and sold on the same day, 25th, July 2014. The auditors were appointed on 22^nd August 2014 and the inventory report was submitted in November 2017 . The committee, therefore, observed that there was non-compliance with the requirement of Section 89(3) of the FIA, 20O4.

Crane Bank Limited

The Bank was placed under statutory management on the 20th day of October 2016. The auditors were appointed on 28th October 2o16 and the inventory report was produced on 13^th  January, 2O17. This bank was sold on 25^th January 2017. The committee noted that just like it did with other defunct banks, that there was no compliance with the requirement of Section 89(3) of the FIA, 2004.

The committee observed that due to the absence of an inventory, the Central Bank could not ascertain the value of what it took over.

The auditors produced the inventory report on 21st of December 2016 however, BoU had invited DFCU to bid for the purchase of assets and assumption of liabilities of CBL on 9n December 2016 and subsequently, DFCU submitted the bid on the 20ft December 2076 a day before the production of the inventory report

The committee noted that BoU did not carry out the valuation of the assets and liabilities of CBL BUT relied on the inventory report and due diligence undertaken

Recommendations

The probe recommended that among others The Central Bank should strictly follow the provisions of section 8(3) of FIA, 2004 and invoke its mandate of appointing auditors ONLY when it is in statutory management. The committee suggested that BoU Board, in consultation with the Minister of Finance, Planning and Economic Development should, by Statutory Instrument in not more than six months, issue procedures and guidelines under the FIA on the resolution of financial institutions in distress.

COSASE recommended that central Bank should strengthen the supervision function to ensure that it is able to adequately supervise financial institutions in real time. This may require investment in human resource and s)/stems, technological or otherwise.

The committee noted that in the case of ICB, Greenland Bank and Co-operative bank, the total loan portfolio sold of UGX 135bn included secured loans of UGX 34.5bn which had valid legal or equitable mortgage on the real property and were supported with legal documentation BUT were sold, to M/s Nile River Acquisition Company at 93% discount. Further, the negotiation minutes detailing the evaluation of alternatives and assumptions of the sale of GTB and NBC assets were not provided and as such the Auditor General could not determine the basis for selling assets at such a discount.

The committee observed that the management of securities liquidation process has not been fully transparent. Indeed BoU itself is still in possession of certificates of titles which they have failed to explain.

The committee observed that regarding the securities of Petitioners, a number of customers of the defunct banks appeared with complaints relating to the management of their securities by BoU and/ or its liquidation agents. The complaints, according to the committee report ranged from the irregular sale of securities, contempt of court orders and illegal withholding of securities upon clearance of obligations.

The committee recommended that section 40 (3) of the BoU Act be amended to provide for exceptional circumstances.

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