Q1 Review: Banking Sector Performance over-shadowed by BOU reshuffles and court cases

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Our Reporter.

The biggest occurrence in the banking sector were the eye-catching changes at Bank of Uganda in February, with the most prominent one being that of executive director for supervision Justine Bagyenda being sent to early retirement.

Bagyenda had been in the news especially about her role in the closure of Crane bank.

She was replaced by Dr Tumubwinee Twinemanzi, who has been serving as the director of industry affairs and content at Uganda Communications Commission (UCC). Twinemanzi has a PhD in economics from University of Texas.

The fraud at Crane bank happened while Bagyenda was directly responsible for supervision. Some observers have said she slept on the job, although the closure of the bank went on smoothly with no depositor losing their money.

Some observers have said, the Crane bank saga could have instigated most of the changes in the supervision department that led to Bagyenda’s exit.

Writing in the press last year, Mutebile said: “No one in BOU believes that its supervision is perfect and cannot be improved. We will learn from the failure of Crane bank and strengthen our capacities and procedures for supervising banks. If mistakes were made, we will acknowledge this and ensure that they are not repeated in future.”

He added: “I strongly reject the allegations that my staff committed collusion or criminal offenses in the supervision of Crane bank, which have been made in some quarters without a shred of evidence to support them.”

While IGG Irene Mulyagonja tried to stop Bagyenda’s transfer, Mutebile wrote to her telling her not to tell him how to run Bank of Uganda and its affairs.

CBR REDUCED.

A February 13, 2018 monetary policy statement by governor bank of Uganda Emmanuel Tumusiime-Mutebile, reported that annual headline and core inflation declined to 3 percent and 2.6 percent in January 2018 from 3.3 percent and 3.0 percent respectively in December 2017.

He attributed this to low food prices, as annual food inflation declined to 2.7 percent in January 2018 from 3.5 percent in December 2017.

For Electricity, Fuels and Utilities (EFU) the annual inflation rate also declined to 9.8 percent from 12.5 percent in December 2017.

He, however, noted that people’s ability to borrow money from commercial banks remained below historic levels and that the cost of credit remains relatively high for micro and small loans.

He reported that inflation is forecast to increase gradually, as the economy strengthens.

“Given the objective of keeping inflation close to the target and the estimated spare capacity in the economy, a cautious easing of monetary policy is warranted to further boost private sector credit growth and to strengthen the economic growth momentum,” Mutebile wrote.

As a result, BoU reduced the Central Bank Rate (CBR) from 9.5 per cent to 9 percent.

“Consequently, the rediscount rate and the bank rate have been reduced to 13 percent and 14 percent respectively,” he said.

Despite this, most commercial banks have maintained their lending rates at not less than 18 per cent due to the volatility of the sector.

Sudhir sues DFCU for rent arrears.

It is now a year since dfcu bank inherited assets and liabilities of Crane bank, but the ride seems to be far from smooth.

Just last month, through Meera Investments Limited, former Crane bank boss Sudhir Ruparelia dragged dfcu to court claiming they owe him Shs 32bn plus interest for breach of tenancy agreements in respect to Plot 38 Kampala road (former Crane Chambers) and Plot 40A on Kampala road.

On account of being the successor in title to Crane bank (in receivership), dfcu expressly inherited all tenancy agreements and, therefore, “assumed the rights and obligations under the tenancies in respect of the suit properties.”

Sudhir says dfcu have failed to meet this rent obligation.

The case stems from a December 16, 2014 tenancy agreement in which Meera Investments let out the basement, ground, 1st, 2nd, 3rd and 7th floor of Plot 38 Kampala road (Crane Chambers) and all of Plot 40A Kampala road to Crane bank for a period of 10 years.

“Under clause 3(c) of the tenancy agreement, it was specifically agreed by the parties (Crane bank and Meera) that the tenancies shall remain firm and binding on them until the expiry of ten years,” reads part of the plaint filed by Meera.

In the above tenancy agreement, Crane bank would pay $46,980 (Shs 171m) in rent and $46,980 (Shs 171m) in ground rent per month with a seven per cent annual increment for Plot 38 Kampala road and $9,890 (Shs36m) in rent and $9,890 (Shs 36m) in ground rent for Plot 40A Kampala road. Both rents were payable a year in advance.

According to media reports, at the time of the takeover, dfcu inherited the entire premises previously rented by Crane bank and rebranded the entire premises. Dfcu also undertook to pay to Crane Management Services (managers of Meera) $531,000 (Shs 1.93bn) in restoration costs and arrears in utility bills.

According to the Meera plaint, Dfcu, in February 2017, entered into a revised contract in “respect of the basement and ground floors of Plot 38 Kampala road for a fixed period of three years.”

Dfcu, however, reportedly continued to occupy 1st, 2nd 3rd and 7th floors of Plot 38 Kampala road and Plot 40A Kampala road “under the terms and conditions of the tenancy agreement dated December 16, 2014” until April 30, 2017, when it opted to vacate them.

For Meera, this constituted a breach of clause 3(c) of the surviving tenancy agreement, that covenanted that the “tenancies shall remain firm and binding on them until the expiry of ten years” and for this breach, dfcu is “liable to pay the plaintiff the sum constituting rent for the unexpired period of 84 months being $8,660,462.34 (Shs 31.6bn).”

Meera, read Sudhir, now wants this money plus interest “at the prevailing commercial rate from the date the defendant was in default until payment in full.”

RETURN PROPERTIES

In the same vein, Sudhir sued dfcu in December last year seeking an order to dfcu to return 42 properties currently occupied by the bank.

He alleged that dfcu and the commissioner for land registration illegally took possession of his 42 properties, initially Crane bank branches, currently occupied by dfcu.

On their part, dfcu are reportedly adamant that they will hold onto the properties of both banking and undeveloped land that they took over from the Crane Bank Limited now under receivership.

Dfcu, whose asset base has since grown to three trillion shillings up from 1.8 trillion shillings since the takeover of the Crane assets, says the Crane bank acquisition, through Bank of Uganda, was legitimate.

According to dfcu, they legally paid stamp duty on each and every one of the transfers of leasehold certificates of the titles of these properties, executed in its favour, worth Shs 41.8bn.

How this drama unfolds remains to be seen as the year progresses.

DFCU STARTS BANCASSURAANCE

On a positive note, dfcu has started offering a wide range of insurance products, including motor vehicle cover, fire and burglary, Child Education, goods in transit and so much more after the Insurance Regulatory Authority of Uganda granted them a license to offer bancassurance services. DFCU now joins Stanbic and Barclays Bank; the other banks offering Bancassurance in Uganda.

As a bancassurance agent, dfcu bank now has greater flexibility to provide a more wholesome financial service tailored to customer needs.

Some of the insurance covers that will be offered will include investment clubs, salary protection, hospital, among others.

Through these covers, the bank’s customers will be able to access medical insurance, life insurance, funeral and related expenses insurance.

BOU ACT TO BE AMENDED

In January, Cabinet resolved to amend the Bank of Uganda (BOU) Act of 2000 to update the Central Bank’s objectives and functions to reflect the changing mandate and roles of a central bank

The ICT and National Guidance minister Frank Tumwebaze told the media that government had authorised the Finance ministry to issue drafting instructions to the first parliamentary council to have the amendment bill drafted and then tabled to Parliament for discussion.

Tumwebaze said the amendment seeks to ensure effective implementation of the requirements of the new national legislation and regional commitments.

He added that the amendment also seeks to strengthen the provisions in the current Act provisions that are considered inadequate in the changing environment.

CENTENARY TO FINANCE AGRICULTURE

In an unusual move, Centenary Bank has this year allocated Shs 500bn to boost agriculture financing.

This was revelaed by the bank’s head of agribusiness and agricultural finance, Evans Nakhokho.

Nakhokho, who was speaking during the 16th African Fine Coffee Conference and Exhibition in Kampala on February 15, said the bank is ready to finance all the agricultural activities along the value chain.

This came barely a month since the Uganda Agribusiness Alliance released its 2017 report on agriculture financing noting that majority of the population who need the agriculture funds are yet to have access despite increased allocations by government, private players and the donor community towards Uganda’s agriculture financing.

Banks have always shunned agriculture financing citing the high risks involved such as unpredictable weather patterns and lack of financial discipline by farmers.

URA, Stanbic launch online tax payment platform

In another development, Uganda Revenue Authority and Stanbic Bank launched an online platform on February 5 that makes it possible for taxpayers to make payments using bank cards and mobile money.

The platform is on the URA website and is available to both Stanbic and non-Stanbic customers. It allows taxpayers to meet their obligations using a debit or credit card (Visa and Master Card) or with MTN mobile money.

It was reported that over Shs74m was collected by URA through the platform in its testing phase that ran from December 1 2017 to 31 January.

Additionally, URA has collected over Shs4.5bn through similar e-payment platforms, the first of which was launched in March 2017.

The new platform is expected to reduce time and costs in tax payment activities, thus eliminating compliance obstacles.

Other payment solutions that have been launched by URA include mobile point of sale terminals on the PayWay network, MTN mobile money, a real time gross settlement system, and electronic funds transfers.

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