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Customers withdraw Ugx. 200bn in the last couple of days
- How NSSF Uganda caused Crane Bank current crisis
- Why Sudhir is not bothered to sell now
- Commercial banks stop lending Crane Bank
- Bank of Uganda staff now stationed at Crane Bank head office
Last week, hundreds rushed to Crane Bank branches to withdraw their money following rumours on social media that the once mighty bank was on the verge of closure by Bank of Uganda. However, Bank of Uganda assured Ugandans that all was well.
The ‘crisis’ at Crane Bank is said to have forced the Bank of Uganda director supervision to abandon a wedding she was attending in London over the weekend to return home immediately.
It is understood that the bank can longer borrow in the interbank market after failing to clear loans it secured recently from the local banks. Available information reveals Crane bank recently borrowed from four local banks: Stanbic Bank, Orient Bank and DFCU bank which money it has failed to pay back. Interbank borrowing allows commercial banks to borrow from one another to settle short-term demands. Barring Crane Bank from interbank trading denies the bank access to short-term credit.
Sources at Crabe Bank reveal that the bank also borrowed (deposited her Treasury bills and bonds as security) from Bank of Uganda which money it has failed to settle. What this means is that the bank’s assets have been reduced. Also the bank can hardly access more funds from the Central bank to meet her current liquidity demands.
Banks depend on customer deposits for survival. They use this money to borrow and earn interest income. However, highly placed sources at Crane Bank told Newz Post that for the last one month the bank has mainly had withdrawals and few deposits.
Highly placed sources told Newz Post that over the last 48 hours, customers have withdrawn more than Ugx. 200 billion from Crane Bank. This mismatch between deposits and withdrawals is expected to cause liquidity crisis or it has already caused one. There reports that some ATMS and Crane Banks branches did not have enough money last week. Customers ended up registering complains at BoU.
With no deposits coming in, interbank borrowing closed, no more access to finance from Central bank, the bank has to depend on previous deposits. How long can it go? Our guess is as good as ours.
the origin of the crisis
After reporting a net loss of Ugx. 3.3 billion last year, and having depleted its capital, the regulator asked the Crane bank management to deposit Ugx. 50 billion. The bank was given up to August 30th 2016 to do so.
The bank managed to deposit half of this money; the regulator then extended the deadline to October 30th. Crane bank management is now left with less than two weeks to the deadline. With no deposits and more withdrawals, it remains to be seen whether management will be able to pay up the balance as required by the BoU. What will happen if he fails to pay the balance is a story for another day.
Enter NSSF Uganda
Crane Bank high interest rate of 24 percent for Uganda shillings and 10 percent for the dollar accounts attracted many including National Social Security Fund (NSSF).
Last year, the Fund deposited Ugx. 185 billion with Crane bank to tap into this high interest. However, after posting huge huges, the NSSF made a decision to withdraw all the money at once plus the interest of 19 percent. You can imagine the bank unexpectedly ‘losing’ this huge money at once, at a time when the bank badly needed cash.
How the bank managed to pay this high interest [24 percent and 10 percent] for fixed deposits remains a mystery. Globally, the highest you can get for dollar fixed deposits account is 7 percent. Analysts say, Sudhir could have had two arms: the bank and lending arm.
It is assumed, he used customer deposits (with a promise of high interest rate) to buy and build buildings in Kampala. It is on this basis that analysts argue that while Sudhir boosts of having dozens of buildings in Kampala, he cannot easily turn these properties into cash to solve the bank’s current cash crisis-talk about speculation.
the investors
Two investors have so far expressed interest in Crane Bank, including NedBank of South Africa only to disappear in thin air. It is understood, the investors run away because of the Crane Bank huge bad loans.
The latest investor to express interest in Crane Bank is the former Barclays Plc chief executive Bob Diamond. According to sources, Mr Diamond’s Atlas Mara Group and the Crane Bank owners have said to be in talks- however, the talks are said to be noncommittal.
As has been the case with other investors, the Atlas Mara Fund is insisting on a write down of Ugx. 60 billion off the bank’s balance sheet. However, sources say, Sudhir Ruparelia, is against this move- writing off the Ugx. 60 billion would bring the overall valuation of the bank’s from $300 million, closer to Atlas Mara’s target of $250 million.
The bad loans are partly a result of over valuation of properties by borrowers. However, Sudhir insists these properties will overtime appreciate to cover up the missing gap.
Ordinarily, given the bank’s current crisis, one would expect Sudhir to go for any offer as long as he recovers some profit. However, analysts say, what gives him confidence despite trading on the very thin line is the fact that he knows he commands a sizeable part of the economy. Crane Bank is the fourth largest commercial bank in the country, with over 700,000 customers and controlling 4 percent of the market. The bank controls more than 9 percent of the credit market. Sudhir is thus aware that BoU cannot easily close his bank whist the bank would go down with several other businesses which would affect the economy.
For how long can he trade on this variable?- Is BoU thinking of better ways to handle this? Just in case the current investor fails to buy off Crane Bank? These are some of the questions that need answers.
BoU staff at Crane Bank head offices
When rumour circulated on Social media that Crane Bank was closing down, BoU quickly issued a statement assuring the bank’s depositors that all was well.
True to this. Sources at Crane Bank told Newz Post that BoU recently allocated a team at the Bank’s head office off Kampala Road to monitor events so that they are not caught unawares. The BoU staff report at 9:00 am and leave at 5:00 P:m Monday to Friday. We were unable to know what exactly they are doing there.
What are the options for BoU?
The Bank has already assured depositors that the bank is okay. However, should things turn upside down, the regulator has two options.
“Banks that find themselves in bad health can be subjected to a merger or acquisition process initiated by us for the purpose of protecting financial stability. But a bank that enjoys good health is free to shop for new investors of its choice,” Dr. Charles Abuka, BOU’s Director for Financial Stability told the East African recently.
The BoU has powers to take over management of the Crane Bank should things fail . and search for local bank to take over the bank’s branches and accounts.
During this time, the BoU would then appoint a recovery firm to sell bank’s assets to recover the outstanding obligations. According to the law, the first person to recover his money is the Uganda Revenues Authority-that is if there are any outstanding tax obligations, followed by the Bank Of Uganda. The others share the leftover.
