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.
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.
African case studies on tax reform and domestic resource mobilization from Togo, Uganda and Ethiopia.
IMF was not very happy when they merged the two offices of customs and revenue. But Togo accepted performance monitoring mechanism that was funded by the WB and when they saw that it was working, then the IMF came back on board.
Introduced reform in a country where the richest people are civil servants
Invested in computers, capacity building, software to have a system that tackles all aspects from declaration to dispute resolution.
Got 15,000 new taxpayers last year, while in past years they used to get 7,000.
Also improve speed and security. Previously, petroleum revenue used to be manually recorded. They now use PIN’s in different departments, and the software is connected to the banking system so no more direct payments (all are done at at banks).
While they initially retired a number of officers who did not want to learn or comply, those who remained had improved terms with performance targets for which they earn bonuses
2015 target was 480 billion CFA and they managed to college 516 billion.
They have not fully used the system yet. It’s only two years old, but they rely on their neighbours for internet connectivity.
Is in the second phase of a 2019-20 plan which targets to fully financing budget from domestic sources. The revenue authority started in 1991 but reforms started in 2005.
Even as the economy has grown, surprisingly the informal sector has also grown to take a larger share of the economy (49% of GDP, up from 43% in 2002. They have had to target the informal sector to keep up e.g via presumptive tax thresholds.
The revenue authorities treat the government as ‘private sector’ and removed their exemptions like VAT and income tax.
Have business bands, and a taxpayer identification number (TIN) is required for most transactions and permits, whether livestock movement, boda boda purchase, agriculture payments etc. All professionals – doctor engineers lawyers also have TIN’s, and they hope the introduction of national ID cards will enhance tax collection efforts.
They have a separate section for international taxation and have built capacity in oil & gas taxation. But as they train staff, other companies hire away their top performer, so they have to be retained.
They have simplified the tax system so people can pay at their convenience e.g. via mobile money even when banks are closed.
Set out to mobilization domestic resources for the largest hydroelectric dam in Africa after foreign donors and partners who had supported previous smaller dams, balked at participation.
The GERD (Great Ethiopian Renaissance Dam) will generate 6,500 MW. It is 1,680 Sq.KM, and 120 kilometres by 14 kilometers and 146 metres high – and it took off in April 2011, is 70% done, to be completed in July 2017.
Because of political impact river to other countries (shared Nile), external funding was blocked by the international community and they turned to own people to meet the $4.8 billion cost (11% of their GDP or about 60% of the country’s 2012 budget).
Got contributions from individuals and companies – local and diaspora – through direct contributions, lotteries, music events.
They also had a diaspora bond which has raised $500 million. People bought the 1.5% bond that matured in 5,7, 10 years. The dam will generate income from electricity sales to pay back the bond – and is expected to generate $1 billion per year.
They also got support from banks, who expanded branches to reach more of the rural population (one bank now has 1,000 outlets) and mobilized deposits. The banks were required to allocate 27% of every loan they make to buy the bond.
It’s been reported that the oil pipeline from Uganda is going to go through Tanzania, not Kenya. Two forgotten facts about the Uganda oil decision are that; (1) President Museveni of Uganda has been steadfast that he wanted to refine oil in Uganda, not export raw crude (2) Uganda’s oil has been said to be waxy or heavy. This means it would require complex heating to keep it flowing along a complex oil pipeline through the rift valleys and hills – to the coast of Kenya.
The cost, insecurity and difficulty of building infrastructure have been cited reasons that Uganda opted to go through Tanzania. Still Kenya has several LAPSSET projects on the cards including an oil pipeline to go to Lamu where there would be a new highway, railway, coal plant and modern, deep-sea port.
Last year at the TDS Nairobi summit, during the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO), a session was held on local content in extractive (and oil) industries. Some interesting comments there included:
It is a legitimate objective for any resource rich country to try to maximize the value of its resources.
If a country puts restrictions on raw exports, it may distort the local economy; it creates artificial demand – and if it is not efficient, local related industries will not survive.
Kenya energy expert Patrick Obath suggested that Kenya, Uganda and South Sudan have to talk together and implement projects together for projects like the oil pipeline to be viable. That would also have to happen to get more value-addition from the oil in the countries e.g. can the countries plan to get fertilizer from oil?
With mining, you have 20 years of opportunity for local suppliers and jobs, but with an oil pipeline that’s only there in the beginning, then goes away once the pipeline is built (there wont be many local jobs after, and communities don’t get an economic boom from having an oil pipeline passing through their land..which may lead to some local frustration).
More on Kenya Pipeline:
The Kenya Pipeline Company is charged with transporting and storing of petroleum products.
A (presidential task force on parastatal reforms proposes the Treasury incorporate a holding company known as the Government Investment Corporation (GIC), into which Kenya Pipeline Company should be transferred to determine (its) intended privatization.
Meanwhile Kenya Pipeline is continuing with its projects including replacing the current Mombasa-Nairobi Pipeline.
While the fate of Imperial Bank in Kenya is yet to be known, it seems to have been concluded in Uganda, where Imperial Bank had a Ugandan subsidiary with 5 branches, in which the Kenyan bank held 59% of the shares.
Today, in a series of tweets, the Bank of Uganda (@BOU_Official), announced that a new majority shareholder, Exim Bank of Tanzania had bought out the shares, and renamed the bank as Exim Bank Uganda, and with a new board of directors.
They were thus lifting the statutory management and expect the bank operations to ‘continue normally.’ No word yet on how much was paid, or who the payment was made to, and if there’s any reaction by the former majority owners of the bank (Imperial Kenya).
The Central Bank of Kenya (CBK) on Tuesday disclosed that Imperial Bank Kenya’s 58.6% stake in its Ugandan subsidiary was sold to Exim Bank for $6.8 million (692.4 million).
The Sh316.5 million balance between the sale price and the amount to be remitted to the Kenyan unit will be used to cover transaction costs and liabilities of the Ugandan operation. The Kenya Deposit Insurance Corporation (KDIC), the receiver manager of the collapsed Imperial Bank Kenya, will receive the amount.
An ad in the September 22 Nation newspaper has a statement by the European Union addressed to exporters from the East African Community on changes to the tariff regime starting on October 1 owing to the failure of the two sides to sign an Economic Partnership Agreement (EPA)
There was also an article in the same paper showing that a draft has been agreed to, and that a final EPA may be signed and effected in time, but others say it is too late for this.
The new rates, while still subsidized compared to what other nation suppliers pay to export to the EU, are still a blow considering that some exports will no longer be duty-free.
EU newspaper ad
While some like tea, coffee beans & carnations will remain duty-free, Kenyan exporters will pay subsidized rates of 4.5% on tilapia exports (compared to a normal EU rate of 8%), 2.5% for roast coffee (not 7.5%), 10.9% for mixed vegetables (not 14.4%), and 5% for roses and cut flowers (not 8.5%) between November and May – which includes the crucial Valentine’s Day period when some flower farms can earn half their revenue.
This caps what has been a tough year for Kenya’s exports of tourism, tea and coffee which have all been adversely affected, and now this. The recently released Economic Survey 2014 showed total exports declined by 3% from Kshs 518 billion in 2012 to Kshs 502 billion in 2013 (as per the Devolution Cabinet Secretary).
Kenya will qualify for the preferential (GSP) tariffs, while Rwanda, Burundi, Uganda and Tanzania are currently considered under “least developed countries” and most of their exports to the EU will qualify for a unilateral 0% tariff.