How accurate are some of the annul Financials of commercial banks? They paint a picture of a good financial health. However, when you dig deeper, the situation is not rosy for some commercial banks in Uganda. The unfortunate part is that the financials are audited by globally respected audit firms.
News reaching us reveals, the Bank of Uganda (BOU) has cautioned a top commercial bank to organise her house as soon as possible or face closure.
A highly placed source working with the said bank, told Newz Post that the regulator is concerned with the state of affairs at this commercial bank. The bank of all bankers has advised that something be done urgently or the worst might happen to this bank. –closing the bank.
The source adds that in December 2015, through her periodical (quarterly) reviews, the regulator’s report revealed that this same bank performed poorly on banking parameters-‘‘CAMELS’’
The ‘ ‘ CAMELS’’ is an international bank rating system used by the regulator to rate banks on six factors represented by the acronym-‘ ‘CAMELS’’- Capital adequacy, Asset Quality, Management Quality, Earnings, Liquidity and Sensitivity to market Risk. The system helps the regulator to identify banks or financial institutions that need attention.
The BOU assigns a score of one (for the best) to five (worst) for each of the six factors. If a bank has an average score of less than two, it is considered high quality bank while financial institutions with scores greater than three are considered less than satisfactory.
The December 2015 report by BOU auditors, found that the said bank was ‘‘less than satisfactory’’. The bank was given time to sort itself out. Meanwhile, BOU kept a close eye on bank.
The BOU report found that the bank huge bad debts and her management was wanting.
The worst part is that the biggest part of the loans were given to one individual. Unfortunately, this borrower ( a top and seasoned local entrepreneur) is failing to service the loans. Reports indicate, his businesses are reportedly not doing well.
With pressure from BOU to do ‘‘something’’, the bank has increased pressure on the heavy borrowers, who have since resorted to selling their assets and business to pay back the loans.
The BOU has also advised that the bank must get an investor to pump in more money as well as bring in management expertise.
The Bank of Uganda Communication Officer, Ms Christine down played rumours of closing any bank in Uganda, preferring to call it speculation.
‘ ‘ Uganda’s banking sector is one of the best in Africa. The sector has a capital adequacy of 18.5 percent way above the minimum of 8 percent.’’ She said.
She, however, refused to discuss individual banks, preferring to give a general picture of the sector.
She revealed that according to BOU standards, all commercial banks in Uganda are performing well in terms of deposits, a key parameter in safe guarding depositor’s money.
The BOU has closed a couple of commercial banks in the past, including the National Bank of Commerce, Global Trust Bank, Nile Bank, Greenland Bank among others.
Asked about the bank’s poor performance on management and huge bad debts, Christine noted that while BOU oversees all banks in Uganda, ‘‘we don’t micro manage these banks’’
The good news according to our source at the this struggling bank is that an angel has come in the form of a globally respected financial Institution with links in Russia.
The investor is set to acquire between 35 to 45 percent shares the bank. The source added that negotiations are ongoing and in advanced stages.
With money to spend and the rich experience, the rival commercial banks in Uganda have every reason to worry.