By Lawrence Kazooba

Experts have advised the government to fix the economy instead of taking over or closing banks.

Last week was one of the gloomiest in Uganda’s banking history as the Central Bank reluctantly allowed a run on Crane Bank, one of the top four financial institutions in the country.

Crane Bank, whose face is successful Ugandan businessman Sudhir Ruparelia, was one of the two successful indigenous banks, together with Centenary Bank.

The news of the bank’s takeover started in a rumour which the Bank of Uganda only responded to in a denial tweet.

Twitter is one of the least used means of communication in Uganda, which anyway, did nothing to stop the rumour spreading and thus concerned customers descended on the bank to withdraw their savings.

Despite some management challenges in the bank done under the watch of the Central Bank, Crane Bank was the only big banks that was pro-business, which helped businesses stay afloat until the Bank of Uganda and Ministry of Finance failed to address key challenges in the economy including low production, the interest rates, the foreign forex, on top of toll the national and regional politics are weighing on the economy.

The last two elections have left the economy bleeding, and the wars in South Sudan and Democratic Republic of Congo have not helped matters since Kampala had turned into a centre of re-export to those countries.

The shiver that struck Crane Bank also swept through the banks in the country, region and world since some banks were eyeing CB for partnerships.

The takeover has caused a storm in the banking industry and once again, shaken trust in the country’s tiny financial sector.

Ugandans have in the past proven that they are using more mobile banking platforms which are unregulated than banks.

 

Government left Crane Bank alone

Watchdog news website understands that as billions of shillings were withdrawn from the bank with the rumour mill going round that Crane Bank was about to close, Bank of Uganda did the minimum to salvage the situation, choosing folding its arms and reluctantly issued lazy statement on social media.

But again, given the less aggressive communication and marketing strategy of the central bank, there is no trust in the new management as customers continue to withdraw their remaining balances from the bank.

Bank of Uganda says they took over Crane Bank because it posed “a systemic risk to the stability of the financial system and that the continuation of Crane Bank’s activities in its current form is detrimental to the interests of its depositors.”

From the look of things, Crane Bank customers would rather deal with an empowered former management than the new management from Bank of Uganda.

Commentators say Bank of Uganda has not successfully breathed life in any bank they have taken over, citing National Bank of Commerce, Global Trust Bank, Green Land Bank, Imperial Bank, to mention but a few.

Experts say BoU mismanaged the takeover, in terms of control of a run on the bank as well as its explanation of how the fourth largest bank could go down within a year under their watch.

No wonder, many fingers are pointing to political witch-hunt, instead of the economics of the decision.

Battered economy

Crane Bank was one of the leading lenders to the country’s business class and therefore its collapse spells doom for Uganda’s middle class.

The government has realized after businessmen asked for bail out that the economy was in trouble.

The majority of these businesses had loans from Crane Bank which had positioned itself as a pro-business bank, thus, the many non-performing loans on the bank’s balance sheet.

The banking sector is reportedly in shock in the aftermath of the Crane Bank takeover.

Local banks should be watched and protected at all times given the fact that top banks in Uganda are foreign owned. Indigenous ones like Crane Bank and Centenary Bank, plough their profits back into the economy instead of repatriating it, so, they are too big to fail.

 

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