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DFCU marches on

Resilience is defined as the ability of people, organisations, systems to mitigate, adapt to as well as recover from shocks and stresses. If there is a bank in Uganda that has shown its resilience in the recent past, then it is DFCU Bank.

Following the takeover of another local bank, the storms that the institution has had to wade through have not been easy. This was very evident in the media presentation of the bank’s performance over the year of 2018.

Some quick facts about the bank:
• With 65 branches across the country, it is the 2nd largest branch network.
• Over 420 ATMs access
• Over 600 Agent Bankers across the country
• Customer base of over 1 Million depositors
• Mobile banking App

Operating in a seemingly stagnant economy, the bank was able to show flashes of marginal improvement in a number of areas and this should be a cause for some celebration. It is a pity that always the profit registered is what most consider when rating the health status of a business. This should always be done in context though.

The role DFCU bank plays in promoting Small and Medium Enterprises is quite impressive. Through the creation of opportunities for the SMEs in the form of training as well as investment support, the bank has impacted on a section of the business community that is crucial to the local economy.

All through the presentations, I strongly noted the following as the key take home issues from the bank’s performance;
• There was a significant drop in reliance on third party borrowings
• The lower interest cost is a great sign of improved operational efficiency
• There was a remarkable growth in the income from other sources other than interest income.
• Improvement in the portfolio quality resulting in a lower impairment charge.



Harbouring ambitions of being a market leader and technology driven financial institution, the journey has only just begun.

With a new MD in place, Mr. Mathias Katamba, I can only look at the future with more hope considering that DFCU bank is an indigenous bank that is rolling with the big global names in the market place.

James Wire is a Business and Technology consultant based in Kampala, Uganda

Twitter – @wirejames


Mwenda wrong on Crane Bank, Facts speak for themselves – Part 2

Conscience is the voice of the soul,” says a Polish Proverb. In the first part of this two stage article, we purposely went on a historical journey to understand how banks have closed in Uganda, the circumstances, and eventual implications. We also did delve into the Project Nyonyi forensic report produced by Price Waterhouse Coopers which according to an international forensics expert I interacted with was a good job done.

The BoU Take Over

Armed with the forensic report, the central bank was right to kick into action. Mwenda argues that CBL still stood a chance but when you realise that the bank was being run like a dingy lodge in Kikoni, you then cannot blame BoU for the measures it took.

With the case of Greenland bank in 1999, BoU attempted to give the owners an opportunity to salvage the operation and nothing good came of it. The level of falsification of information from the bank was quite disturbing and this perhaps was the last nail in the coffin of that bank. As good students of history, I believe Mutebile and his team must have realised the correlation between Greenland Bank and Crane Bank in terms of falsification of information as well as lack of conformity to proper corporate governance of a Financial institution, hence the decision to take over.

Mwenda’s Assertions

Bank of Uganda acted in the most rush way in its resolution of Crane Bank issues which makes it suspicious. First when it claimed Crane Bank was in distress, it should have given Sudhir time to find an investor to inject new capital into the bank. Many banks were actually in negotiations with Crane to buy it.” ~ Mwenda

Basing on the historical lesson of Greenland bank, International Credit Bank and Cooperative bank, nothing justified CBL being given another chance to pursue remedial action especially under the same management that had failed to meet the minimum expectations to run a public Financial Institution. Apart from alleging that many banks were in negotiations with CBL, there is no attempt made to give us more information on which banks these were and what their offer was as well as their ability to stand tall amidst such an acquisition. Buying a bank is not merely about walking in with cash, there is a lot more to it than buying a car from a showroom.

BOU hamstrung Crane by stopping it from doing any new business like issuing new loans, overdrafts, bid bonds, performance guarantees, letters or credit etc. Crane was a bank for the business community. Stopping it from doing anything for three months was a disaster. It forced its customers who could not get a service to pull their money and business out of Crane to other banks and thereby transformed a capital adequacy problem into a liquidity crisis.”~ Mwenda

In the English language, there is an idiom, “throwing good money after bad.” It literally refers to spending more money on something problematic that one has already spent money on in the hope of fixing it. With the glaring evidence of poor corporate governance, insider lending highly linked to Mr. Sudhir Ruparelia, loans issued to one week old companies utilising collateral already pegged to previous loan applications, only a fool would allow CBL to dig a deeper hole. Mwenda conveniently avoids telling the public that CBL even before the BoU intervention was always negotiating with customers who wanted to make large withdrawals to spread them over a longer time frame. If it grunts like a pig, then it’s a pig. CBL had already dug the pit and could not be expected to get itself out of it.

Crane Bank had a good and wide branch network, a huge customer base, a great brand and $40m (Shs 144 billion) in tax assets. Its deposits had fallen from Shs 1.4 trillion to Shs 1.0 trillion because of BOU restrictions that caused a run on Crane. ~ Mwenda

Again, conveniently, he avoids notifying the general public that the net assets of CBL at the point of liquidation were negative to the tune of UGX 300Bn. The bank had client obligations of UGX 700Bn and the continued running of CBL was costing billions of shillings in losses monthly which was further eroding the company’s value.

There are other institutions that were interested in buying the Shs 550 billion worth of bad loans – at a discount of course. BOU refused this suggestion out of hand and therefore lost an opportunity to get a good deal. Instead it sold all the good and bad assets to DFCU at only Shs 175 billion ..”~ Mwenda

This is when I’m quickly tempted to remind Mwenda that selling off a bank isn’t akin to selling an old spent car. With the car, you can choose to sell off the engine, bumper, bonnet, doors, seats to different buyers. He insinuates that the bank could have been sold in bits and pieces based on who is offering what for the different portions. This is not how things are done my brother. There was need to maintain strategic balance in the banking industry hence the desire to get a takeover partner that not only knows the local market but has the muscle to ensure there is continued stability in the banking industry. I wish he could tell us more about those institutions that were interested in buying the bad loans and what their offers really were. Maybe he could win us to his side otherwise for now, this is mere samwa samwa (loose talk). Rumors do not apply here, we need to work with facts. DFCU is backed by ARISE BV that has invested over One Billion dollars in Africa.

BOU had injected Shs 450 billion of taxpayer money as liquidity into Crane Bank when it took over management. Under the sale agreement, DFCU is required to pay back this money to BOU over a period of three years without interest. Yet Sudhir had asked for a loan of only Shs 165 billion from BOU (as lender of last resort) at an interest rate of 5% to recapitalize the bank. So BOU would earn Shs 8.25 billion per year.” ~ Mwenda

Just in case Mwenda didn’t know this, DFCU was required to offer security for this UGX 450Bn injection BoU made into the ailing CBL. As a result, they attached most of the bank’s Treasury Bills to act as collateral. If they didn’t have them, then they would have probably been disqualified. The case he tries to make for Sudhir to be lent UGX 165 Billion is laughable and honestly it’s the last thing I expected from such an analytical mind. I have come across people who have lost money in the Telexfree scam, only to borrow more and get into the D9 scam, lose more money and now want to borrow more money to venture into another scam. CBL’s bubble had burst. The bank’s operations had become a ponzi scheme. No amount of continued lending especially to the same inept management would salvage it.

In fact if BOU had used the Shs 450 billion to buy distressed assets of banks, it would have saved many businesses from companies from collapse and with them jobs for Ugandans, taxes to government and promoted a healthy economy. And it would have earned interest of above 15% and made a huge profit…. DFCU took public funds for free.” ~ Mwenda

Again we are talking about treating symptoms here. How did CBL get to this point? As revealed earlier when analysing results from the PWC report, it is evident the bank was led into this state by its lead owner. This would be akin to rewarding a lion for eating a farmer’s cows. This is a situation where we are dealing with white collar crime. Once again, it would be good to have a list of some of the “many businesses” that Mwenda says collapsed and how many people they employed. I wouldn’t be surprised if reference here is to the shell businesses that were set up to merely act as conduits for money being siphoned out of the bank. As for DFCU taking public funds for free, I think that has already been dispelled earlier when I shared about the T-Bills put up as security.

Let us remember that BOU claimed that Crane Bank was insolvent, riddled with many bad loans and over statement of its actual financial position. So they sold its assets for Shs 175 billion only. What the news of DFCU profits for the first six months of taking over Crane Bank reveals is that BOU was either extremely incompetent and/or grossly misunderstood Crane Bank’s actual financial position. Or may be there was fraud. What we now know is that BOU sold very good assets at basement bargain prices. Why?” ~ Mwenda

I believe it is time to go for a quick lesson in accounting. When assessing banks for take over, the principle of Fair Value is used. It is the rational and unbiased estimate of the potential market price of a good, service or asset. It is usually done by specialists. In the case of CBL, a fair value assessment was done on customer deposits, physical cash and balances, loans and advances, computer software, listed stock and bonds, shares in private companies, land and buildings, furniture and fittings as well as other movable assets. So, when DFCU took over CBL, the fair value attached to the bank’s assets, less the acquired liabilities came up to UGX 60Bn. However, this does not mean that it’s money they actually inherited, it is the business potential of what they took over which might materialise or not. Based on accounting principles, this was reflected on the Profit & Loss of DFCU, hence the reflection of that profit that Mwenda dwells upon without bothering to find out how it got onto the books. When Fair Value is included, you have to make an effort to earn it tangibly, failure to do so implies that you have to remove it from the Profit and Loss statement. So, depending on how things go within the next one or two years, this Fair Value from CBL assets could easily diminish to zero thereby impacting the profit situation negatively.

DFCU had invested nothing to get these loans worth 800 billion. Given the average interest rate in Crane Bank of 25%, DFCU was inheriting an asset with income of Shs 200 billion (in form of interest per year). Yet it would have invested very little to earn this interest. It was obvious this was a deal made in heaven for DFCU.~ Mwenda

It is obscene to assert that DFCU invested nothing to get the loans of CBL when he is aware that the bank borrowed from its parent company US$ 50 Million in order to meet the core capital requirement of 12.5% by the Central Bank. Was it a deal made in heaven? No. DFCU exhibited the muscle required to manage this takeover without doubt. It’s a bank that has been around, established a solid reputation and shown consistent growth year on year. There is no evidence at least as of now of them cooking up their books, something which had become a pass time at Crane Bank. That 800Bn loan portfolio talked about is largely to cronies of Sudhir who chose to live large at the expense of public money and DFCU only needs prayers to recover that money. Without mentioning names here, I’m sure by browsing through the tabloids, you notice that all of a sudden, certain names that were famed for flashing money all over the place are no longer featuring, the noose is fast catching up.

What would have happened if CBL had been shutdown and liquidated?

To effectively understand the effect of a total closure of CBL, let us imagine a one Isma. Isma is an account holder with Crane Bank. He has a personal as well as a business account for his Workshop. Isma was given an opportunity to make supplies to a customer and as part of the agreement, a 50% deposit amounting to UGX 60 Million was wired to his business account. On his personal account, Isma has savings to the tune of UGX 17 Million which he hopes to grow to UGX 25 Million in order to buy his first plot of land.

One morning, he wakes up and he’s told, Crane Bank has been closed. First, he has to deal with the headache of the customer’s supplies, where is he going to get money to process them? Next is the uncertainty of his personal savings. This is a very grim possibility. I recall just after completing university when Greenland Bank was closed, a media house I had gotten accustomed to went down the drain overnight in the process. It was called the Crusader and one of its directors was Mr. Onapito Ekomoloit who eventually had to move on and seek employment elsewhere.

The next thing Isma hears is an announcement from the Bank of Uganda that all depositors in Crane Bank will be reimbursed upto a maximum UGX 3 Million Shillings which is what the Deposit Protection Fund guarantees. So, for his personal account, he should get ready to lose UGX 14 Million, money he has been saving over a year. While for his business, he loses at least UGX 42 Million of client money. Do you see the potential disaster?

In the case of Greenland Bank and ICB, the government strategically chose to pay up all depositors their outstanding dues on humanitarian grounds and thereafter went ahead to announce that in future, it would stick to what the law requires of it.

Did Mwenda want to see a scenario where depositors with UGX 100M in CBL walk away with a paltry UGX 3 Million? This would have further eroded the confidence in the banking industry hence the move to allow DFCU continue with operations of the bank while guaranteeing customers their money’s availability. The truth is, Sudhir and his cohorts had messed up the bank. Simple!!!

Whatever the case, DFCU demonstrated the ability to create continued stability in the banking sector of Uganda hence our need to applaud them for the take over. True, there were mistakes on the part of BoU especially in terms of supervision but that is a story for another day.

A close analysis of Crane Bank and its Investor(s) clearly reveals a systematic trail that begun years back to perpetuate questionable practices with the aim of disenfranchising the bank’s customers. Fraud risk factors are classified based on three conditions:

  1. An incentive or pressure to commit fraud – Yes there was
  2. A perceived opportunity to commit fraud – Not identified yet
  3. An ability to rationalise the fraudulent action – Yes, especially after altering the shareholding

These and many more issues may be addressed in a subsequent article if you the reader would like to know more.

So, Who raped Crane Bank?

John 8:23 ~ Then you will know the truth and the truth will set you free.

James Wire is a Small Business and Technology Consultant based in Kampala, Uganda

Follow @wirejames on Twitter.

Email lunghabo [at] gmail [dot] com

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