Category Archives: receiverships

Reading the Tea Leaves at Crane Bank

On October 20, the Bank of Uganda (BoU – the country’s banking regulator) took over (PDF) the management of  Crane Bank and stated that:

  • Crane was significantly undercapitalised (and) poses a systemic risk to the stability of the financial system (and) ..  in its current form detrimental to the interests of its depositors.
  • BoU  appointed a statutory manager and suspended the Board of Directors of Crane Bank
  • Crane Bank will remain open and its operations will continue normally but under the management and control of BoU.

Tweets about Crane Bank Crane Bank was started in 1995 and was said to be the fourth largest bank in Uganda. It had 46 branches in Uganda and 2 in Rwanda, where the bank regulator has said that the Crane Rwanda subsidiary licensed in 2014 is solid and will remain unaffected by the closure of the parent in Uganda.

In its 2015 supervision report, the Bank of Uganda made reference to the performance of domestic systemically important banks – Stanbic Bank, Standard Chartered bank and Crane Bank which accounted for 36% of total banking sector assets. ..there was a decline in asset quality among D-SIBS with NPL ratio rising from 3.5%  percent in December 2014 to 7.6% (and) while this reflected the general performance of the banking sector, the decline in quality among DSIBs was also on account of the performance of one bank with a significant exposure to one borrower. All the DSIBs have adequate capital to absorb losses.

Crane Bank is an award-winning indigenous bank in Uganda and was audited by KPMG. Like Chase Bank in Kenya, it was said to be a fast growing, darling of entrepreneurs, paid higher interest rates to depositors, and progressive in its outlook to entrepreneurs and business people – with lot’s of referrals by word of mouth and repeat business from customers.

But one difference from Chase Bank is that while there was the bank was very inactive on social media, Crane had posted only 2 tweets this year even as there was a storm of social media posts leading to the take over last week.

The 2015 annual report of Crane notes that:

  • The Bank’s loans & advances reached  UGX 1,010.9 Billion against UGX 836.9 Billion in 2014  
  • Customer Deposits grew from UGX 1,267.5 Billion in 2014 to UGX 1,336.6 Billion in 2015 indicating the growing confidence of our patrons and customers.
  • The bank added about 75,000 accounts during the year, pushing the total number of accounts to 499,133 as of December 2015.
  • The bank is controlled by Dr Sudhir Ruparelia who controls 48.67% of the voting rights in the bank.. at 31 December 2015 advances to companies controlled by directors or their families amounted to Shs. 1,003 million (2014: Shs 4,639 million). All the above loans were issued at interest rates of 16% (2014: 16%) and were all performing as at 31 December 2015 and 2014.
  • The aggregate amount of non performing loans and advances was Ushs 142,358 million (2014 – Ushs 19,362 million).
  • As at 31 December 2015, the bank had no exposures to a single borrower or group of borrowers exceeding 25% of its total capital
  • (importance in tax collection) The bank maintained its position among top collection agents for UMEME / NWSC and (is) in partnership with URA to do all URA PIN generation and KCCA COIN registration and all URA & KCCA payments. Bill payment is currently enabled through Internet banking.

Other news stories:

  • A few months ago, the bank’s principal shareholder spoke with Red Pepper about the impending sale of a stake in the bank.
  • The East African has a story on how employee tipoff may have led the government, large and foreign depositors to withdraw huge sums from the bank as talks with suitors like Atlas Mara got more complicated.

$1 = ~UGX 3,414. 

EDIT February 2022: A court has ordered the Bank of Uganda  to compensate Sudhir Ruparelia, for sums he lost when Crane Bank was closed and also to hand over all properties that were confiscated as a result of the bank’s take over to his Meera Investments. – via Stanbic Uganda.

Bad Debts in 2016

According to the Central Bank’s Q1 summary,  non–performing loans at commercial banks have increased this year by 15% to Kshs 171 billion in March 2016..Real estate sector recorded the highest increase over the quarter by 42% – attributable to slow uptake of housing units. apartment blockPersonal/household sector registered increases of 21% as a result of negative macroeconomic drivers such as job losses and delayed salaries. The manufacturing sector had an increase of 15% due to slow down in business leading to failure to generate enough cash flows to meet all financial obligations. Transport and communication, agriculture and mining and quarrying economic sectors registered decreases in non-perfoming loans between December 2015 and March 2016. 

Non-performing loans are still only about 6%, but the report also excluded Charterhouse, Chase and Imperial banks.

Imperial Bank: The End?

The Central Bank of Kenya (CBK) announced that today that the closed Imperial Bank (IBL), will not reopen. In fact it will be liquidated by NIC Bank, Kenya’s 9th largest bank.

This all started 9 months ago, on 15 September 2015, when the Imperial Bank group managing director (GMD), Abdul  Janmohamed passed away.  The bank directors then discovered fraudulent transactions that the GMD has orchestrated at the bank. They presented their findings to the CBK, who then shut the bank.

While the CBK blames the board and shareholders, the, the shareholders/directors say they were innocent of the wrong-doing perpetrated by the GMD; they had a hands-off role (complying with CBK rules for non-executive directors), and that their external auditors and the Central Bank were lax and should have flagged the 13 year fraud. The shareholders of the bank were optimistic that a strategic investor would buy the bank within 12-18 months of reopening. But it’s not clear if NIC has been selected to do that by the Kenya Deposit Insurance Corporation (KDIC). NIC will also assume the majority of IBL staff and branches, and announcements on the way forward will be made in the near future. 

Imperial Bank logo

  • NIC will pay Kshs 1.5 million to all depositors. Thereafter, it is expected that at some point, NIC will pay any remaining depositors about 40% of their proven deposits (there are individuals and institutions who had tens or hundreds of millions of shillings as deposits) (Last year, KDIC used KCB and Diamond Trust banks to refund Kshs 1 million to each depositor at Imperial Bank)
  • NIC will get access to operate the 26 branches in Kenya. But the 2015 bond information memorandum noted that Imperial owned no property. The Bank owns no Properties. It leases all the premises used for its business operations. In Uganda, the 5 branches there were disposed of in a sale.
  • It’s not clear how many of the 600 employees at Imperial are still around, waiting for jobs
  • The CBK statement notes that a forensic audit is almost complete. This is an exercise that the directors of the bank began after the GMD died to determine the extent of the hole in the bank.
  • Court cases will continue and KDIC will retain other assets of the bank (..cash, collateral, government securities, loans..)
  • If it heads to liquidation, the name Imperial Bank (name) will disappear.

$1 – Kshs 101

Reading the Tea Leaves at Chase Bank: Part II

Yesterday the directors of Chase Bank appeared before a parliamentary committee looking at the closure of the bank. They traced the events at their bank, back to the sudden close of Imperial Bank which was followed by a slow down in liquidity in the banking sector, and finally late disagreements with their audit firm – Deloitte on some items in their financial statements, including reconciliation of Islamic bank products.

 These Islamic loans were reclassified, at the auditors insistence as insider loans, and new sets of accounts were published in the newspapers, which the directors did not sign. Later, the same day, the Chairman and Group MD also said they were forced to resign. All this bad news coming out on one day precipitated a run on the bank.  There were also a few (in-camera)  sessions at parliament from which the media were barred.

This public spat between Chase and Deloitte all adds to what’s been an unusually busy news cycle for auditors and audits. Chase was big in Islamic banking, and in their 2015 memorandum to raise funds though a bond issue, the noted that they started Sharia compliant banking solutions in 2008 and these now amounted to 12% of  their customer deposits. KCB over Chase

This is close to the size of fully complaint Shariah banks like Gulf and First Community, and far larger than other more established banks who had ventured into Sharaih banking like KCB and Barclays.

Since reopening at the end of April, Chase Bank has opened its doors, apps, and platforms to its customers. In conjunction with KCB and the receiver manager at the Kenya Deposit Insurance Corporation they were able to avail funds to depositors. But the bank is yet to resume loans and lending – and that is the life blood of any bank.

Uchumi: This Is It

It’s hard to believe that I’ve been writing about Uchumi Supermarkets for as long, as I’ve had this blog – about ten years. The company seems to go through a cycle every few years of capital injection, expansion & new store openings, shareholder reassurance, a few years of smooth sailing, followed by diminishing stocks of products, management change (Suresh Shah, Titus Mugo, Kennedy Thairu, Masterten-Smith, Jonathan Ciano), restatement of accounts, change of auditors, restructuring of debts etc.

At the 2010 special meeting of shareholders (during a receivership period), Kenya’s solicitor general (speaking for the government, which had bailed out the company) said nothing was fundamentally wrong with Uchumi when it collapsed, just bad governance.

But this time, it hopes to have put the past behind, and things are now looking up again for Uchumi. Its CEO, Julius Kipngetich, was on a TV blitz last week where he recapped the position that the supermarket is in and the way forward. Uchumi is now lean after laying off 2,300 staff, closing its unprofitable Uganda and Tanzania subsidiaries as well as 7 branches in Kenya, one of which was in a mall (Taj) that was going to be demolished for expansion of a highway. They are in the process of selling non-core assets (3 land properties), re-negotiating with suppliers to settle debts and (in exchange for some equity) resume supplies, and seeking a new strategic investor.

Some of these have now advanced recent announcements that most suppliers have agreed to convert some debt in exchange for  about Kshs 1.8 billion of equity in the company. Also the Ngong Road Hyper branch has been sold (but Uchumi plans to continue occupying it as a tenant) and just this week the Visa Oshwal Business Community, who comprise key suppliers,   agreed to resume supplying stocks, with one of them ending a lawsuit to wind up Uchumi.

Uchumi’s latest restructuring is happening is at a time when supermarkets are ‘apparently’ booming in Kenya. Nakumatt just opened its 61st stores, Naivas and Tuskys are growing, despite the family battles they have, Choppies (of Botswana) has taken over Ukwala and Carrefour has just opened at The Hub in Karen, in upmarket Nairobi.

Uchumi basket

Banks like UBA are ready to support. KCB has been a long terms banker, and Jamii Bora banks is the largest shareholder (15%) of Uchumi, closely follow by the government (14%).

Uchumi stores now have almost all products back on the shelves, but with some familiar brands still missing, for now.  As the CEO, said in one interview, Uchumi aim to serve middle class consumers, who want to buy Kenyan products .

In the next three months, they hope to narrow down a strategic investor to be the anchor shareholder of Uchumi, from a pool of bidders that were invited privately.