Probe raises ques­tions over Bank of Uganda

Lax su­per­vi­sion, trad­ing losses and wide­spread in­ter­nal fraud cited by com­mit­tee

The East African - - NEWS -

By BERNARD BUSUULWA

An on­go­ing Par­lia­men­tary probe into the clo­sure of seven com­mer­cial banks in pre­vi­ous years by the Bank of Uganda is rais­ing ques­tions about the state of mon­e­tary pol­icy man­age­ment and the health of Ugan­dan banks.

The in­ves­ti­ga­tion by the Par­lia­men­tary Com­mit­tee on Com­mis­sions, Statu­tory Au­thor­i­ties and State En­ter­prises cast doubt on trans­ac­tions and con­duct in Bou’s bank su­per­vi­sion unit.

A case in point was the sale of a com­bined loan book be­long­ing to the failed banks that was val­ued at more than Ush300 bil­lion ($79.9 mil­lion) but sold at just Ush8 bil­lion ($2 mil­lion) to Kirk­land and As­so­ciates. Some Ush19 bil­lion ($5 mil­lion) re­mains un­ac­counted for in Bou’s op­er­a­tions records, the com­mit­tee found.

The af­fected banks were closed be­tween 1992 and 2016 on grounds of se­verely di­min­ished cap­i­tal, ex­ces­sive non-per­form­ing loans, poor man­age­ment and in­suf­fi­cient liq­uid­ity. These were Teefe Bank, In­ter­na­tional Credit Bank, Green­land Bank, Co-oper­a­tive Bank, Global Trust Bank Ltd, Na­tional Bank of Com­merce and Crane Bank.

The com­mit­tee’s ini­tial hear­ings have been dom­i­nated by in­tense grilling from leg­is­la­tors over the qual­ity of Bou’s han­dling of bank clo­sures, luke­warm re­sponses pro­vided by cur­rent and for­mer cen­tral bank ex­ec­u­tives plus the ar­rest and pros­e­cu­tion of a se­cu­rity of­fi­cer and a driver over the il­le­gal trans­fer of some sen­si­tive doc­u­ments from BOU to a mys­te­ri­ous lo­ca­tion on a week­end.

Now ques­tions are be­ing asked about the ex­tent of the Bou’s man­age­ment prob­lems and their im­pact on core func­tions such as mon­e­tary pol­icy. Benoni Ok­wenje, fixed in­come trader at Stan­bic Hold­ings Ltd

This refers to the mon­i­tor­ing of cash in cir­cu­la­tion, in­ter­est rates, ex­change rates and con­trol­ling in­fla­tion through use of pol­icy in­stru­ments like the Cen­tral Bank Rate.

Tax­payer ex­pec­ta­tions

Faced with a se­cre­tive but pow­er­ful in­sti­tu­tion, queries about trans­parency and fair­ness in de­ci­sion mak­ing have gained promi­nence dur­ing the hear­ings. Who ac­tu­ally con­trols mon­e­tary pol­icy in Uganda? Who eval­u­ates past mon­e­tary pol­icy de­ci­sions? Does Bou’s mon­e­tary pol­icy ac­com­mo­date tax­payer ex­pec­ta­tions? Why is the cen­tral bank re­luc­tant to pub­lish the min­utes of Mon­e­tary Pol­icy Com­mit­tee meet­ings?

Whereas the BOU kept the Cen­tral Bank Rate un­changed at 10 per cent for De­cem­ber last week — a move that pleased some an­a­lysts, the bank’s of­fi­cials and fi­nan­cial traders sound de­fen­sive over queries raised on the qual­ity of Uganda’s mon­e­tary pol­icy.

“Our mon­e­tary pol­icy is solid. If you look back at two years ago, in­fla­tion and in­ter­est rates seemed to be head­ing up­wards but we con­tained them. I think mon­e­tary pol­icy should be judged on out­put and not what is hap­pen­ing in a House com­mit­tee,” said Dr Adam Mugume, the Bou’s ex­ec­u­tive di­rec­tor for re­search.

“The BOU has some of the best ex­perts on mon­e­tary pol­icy and is still ranked as one of the best cen­tral banks in the re­gion. There may be cred­i­bil­ity is­sues raised by the probe but the mon­e­tary pol­icy and bank­ing su­per­vi­sion units have been sep­a­rate for a long time and this means less risks of con­tam­i­na­tion re­lated to bad tech­ni­cal habits,” said Benoni Ok­wenje, a fixed in­come trader at Stan­bic Hold­ings Ltd.

Pic­ture: File

A Bank of Uganda stand.

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