By Watchdog reporter
Following Crane Bank take over by Bank of Uganda last year, a lot of speculations were in place regarding the real cause of the collapse of the then fourth largest bank in Uganda with assets in excess of Shs1.8 trillion as of October, 2016.
However, on Thursday former owner of the now defunct Crane Bank, Sudhir Ruparelia through his lawyers Kampala Associated Advocates filed a defence in a case which the property mogul along with his Meera Investments Limited are accused of siphoning Shs400 billion from the bank.
In the filed defence, Sudhir revealed the real cause of collapse of Crane Bank.
According to Sudhir, Crane Bank was, until October 2016 the fourth largest bank in Uganda with assets in excess of Shs1.8 trillion.
He said sometime in 2015-2016, Crane Bank had to make additional provisions for bad loans referred to in the banking industry as Non-Performing Assets (NPA) as a result of slow- down in the economy that impacted generally on the profitability of the banks.
A number of customers trading in South Sudan, in the oil and gas sector in Uganda and in the economy generally had even sought a ‘government bailout’ to pay bank loans, including owed to Crane Bank.
“As a result of the slow-down in the business environment and the property market , there was an increase in the NPAs , which resulted into Crane Bank becoming undercapitalized and necessitated an additional capital injunction,” Sudhir revealed in the filed defence.
He says Crane Bank shareholders injected additional capital of $8 million approximately Shs30 billion and they sought an equity investor and indeed found partners willing to capitalize the bank.
In July 2016, BoU stopped Crane Bank from carrying out business relating to various facilities such as letters of credit, Bank guarantees, bid bonds, performance bonds and writing of fresh loans.
“This action crippled Crane Bank’s banking business and cause it to lose many customers,” Sudhir blames BoU.
“BoU subsequently placed a lien on Crane Bank’s treasury bills with a maturity value of Shs169 billion, which crippled the bank further. The effect of the lien was that Crane Bank could not access inter-banking funding, which inhibited its capacity to do business,” he added.
The Ruparelia Group chairman states that shortly after BoU’s action, messages began to circulate on social media claiming that Crane Bank was at risk of closure, which caused a run on the bank when customers rushed to withdraw their deposits.
“Within a space of 30 days an estimated Shs250 billion was withdrawn by depositors of Crane Bank,”
From there, Crane Bank moved from capital adequacy problem to a liquidity problem.
He says Crane Bank accordingly approached Bank of Uganda from which it sought to borrow money as a lender of last resort under FIA, among other reasons; the lien on the Treasury Bills had stopped inter-bank facilities. BoU made an offer to provide money, which was not sufficient to cover Crane Bank’s liquidity requirement.
Sudhir reveals that between 2015-2016, Crane Bank shareholders entered discussions with various strategic investors and informed BoU about the discussions. Shortly before the commencement of the due diligence by one of the potential investors and just after BoU had been informed of the discussions, it stopped Crane Bank from trading in Letters of Credit, Bid Bonds, Performance Guarantees, overdrafts and writing of new loans and on 20th October, 2016, BoU took over management of Crane Bank.
On January 20, 2017, BoU placed Crane Bank under receivership.
Around January 20, 2017, Crane Bank assets, deposits, branches and staff were handed to dfcu Bank Limited by BoU on undisclosed price.
However, in his defence, Sudhir wants BoU to disclose the entire sale process, terms and price of sale to dfcu Bank, the valuations of all securities that were sold, a valuation of all assets and the value and treatment of the performing and non-performing loans and their sale price and terms to dfcu Bank.