By Our Reporter
Bank of Uganda took over the management of Crane Bank on Thursday sending the bank’s depositors and entire banking sector into a frenzy and fearful mood. The takeover came after weeks of speculative talk that the commercial bank was troubled and being sold by majority shareholder Sudhir Ruparelia.
Bank of Uganda last week came out to clarify that while Crane Bank was looking for an investor to recapitalize, the process is a normal practice and that the commercial bank was in a fine state. Bank of Uganda which regulates the banking industry confirmed that there was no reason for customers to panic. The central bank also quashed social media messages suggesting that Crane Bank customers should withdraw their deposits.
However a high ranking official at Crane Bank lamented that Bank of Uganda was unfair and malicious in their decision to take over the indigenous bank’s operations. He said they have been engaging Bank of Uganda for the last six months but the central bank has not been helpful. The official who preferred not to be named to speak freely said Bank of Uganda has turned down all potential investors presented to them by Crane Bank. He suggested that maybe some individuals benefit when Crane Bank fails. “Why now, we have been talking to them and we are in a process of recapitalizing. Look at our assets; we are in a good position to continue operations especially once we get an investor to inject more money in the bank. Bank of Uganda seems wants to fail but this will not happen.” The official said.
No lessons learnt
This is not the first time Bank of Uganda is moving in on struggling commercial banks. In 1998, the central bank took over the management of Greenland Bank before completely closing it down on April 1 1999. Other banks that have been affected by Bank of Uganda’s hard hand include Global Trust Bank, Teeffe Trust Bank, Greenland Bank, National Bank of Commerce, TransAfrica Bank and International Credit Bank among others.
The effects of the closure of such banks have been immense and still fresh in the eyes of the affected persons. Many Ugandans lost their life’s savings and business that were backed by these banks suffered. Therefore by experience Bank of Uganda and government should have known the devastating results caused by these harsh decisions. Bank of Uganda should know better that if a similar feat happens to Crane Bank which boosts of more 700, 000 active depositors the economy and most especially the banking sector which is fragile will also suffer.
“People will start losing trust in commercial bank because they can’t continue losing money. There will be a liquidity crisis and Bank of Uganda is facilitating it,” the official warned.
People will stop trusting banks
A financial expert, Eric Debele, has warned that the decision by Bank of Uganda to take over Crane Bank will have a significant effect on the recovery of Crane Bank which has been looking for a partner to recapitalize. The central bank governor Emmanuel Mutebile said crane bank was undercapitalized and posed a systemic risk to the banking industry.
However Debele says that what Bank of Uganda did at a time Crane Bank was looking for capital is the worst thing that can happen to any bank. “Any investor will think twice before buying into Crane Bank. This will mean Crane Bank failing in its endeavor to recapitalize. For how long will the central bank treat local banks in such a manner? Bank of Uganda should be supporting local banks instead of interfering in their operations even at such times.”
Debele adds that at a time when Ugandans lack confidence in the economy and the banking system, the developments at Crane Bank mean that the trust in the banking system will fall further down.
Customers, according to Debele, will start withdrawing their savings and the banks will not have money to lend or invest. This, he says, will be a disaster for the delicate banking sector.