Why BoU sells banks cheaply

Delay to sell off the customer loans

While best practice requires that assets of a liquidated bank are sold off in a short period of time following liquidation, the AG found that majority of loans (about 79%) were sold in 2007 despite the banks closing in 1998 and 1999.

Apart from this, the AG notes that contrary to standard procedure on liquidations since 2002 when BoU took over the liquidation role, agents it had appointed, no liquidation reports including asset movement schedule/ledgers for the three dosed banks, were provided.

“Therefore,” the AG notes, “I could not verify the movement of assets from Shs.117bn at closure to Shs.19bn stated in the statement of affairs as at 30th June 2016.”

Also, the AG notes that although the statements of affairs as at 30th June 2016 13 indicated that all the physical assets and customer loans had been sold, there was a communication from the Senior Banking Officer (SBO) showing that the liquidator did not sell some of the assets (4 land titles) previously owned by Co-operative bank as shown in the table below. According to SBO the titles are still in custody of the Central Bank.

“In the absence of the asset schedules,” the AG notes, “I could not confirm whether all the assets were accounted for.”

Liabilities

A review of the closed banks statement of affairs as at 30th June 2016 revealed that liabilities amounting to Shs.147bn remained outstanding.

Overall the process of settling liabilities has taken long (over 17 years) and this has affected the winding up process of these banks, the AG notes.

Increasing claims

When the AG requested claims submitted by claimants and how they were verified and settled, these were not provided.

In absence of these, the AG noted; “I could not verify the total liabilities totaling to Shs207bn at closure and Shs.147bn as at 30th June 2016. I could also not establish how ICB claims increased from Shs.2.728bn in 2002 to UGX.24.232bn in 2005. I could also not establish how Greenland claims (Other unsecured creditors) increased from Shs.2.629bn in 2005 to Shs.27.430bn.”

Increasing customer deposits

Customer deposits for the three banks amounted to Shs.134bn at closure. All the customer depositors for the three banks had been settled, BoU noted.

But the AG was not availed with documentation showing how the deposits were initially arrived at and how they were finally settled.

“For instance,” the AG notes, “I could not verify how the customer deposits increased by UGX.1.805bn from UGX.16.693bn in 1998 (time of closure) to UGX.18.498bn in 2001. Furthermore I could not verify how the Co-operative bank customer deposits increased by UGX.2.486bn from UGX.53.382bn in 1999 (time of closure) to UGX.56.309bn in 2001.”

 Unsupported Liquidation costs

The AG also noted that BoU did not maintain financial ledgers and financial records in relation to the liquidation costs.