{UAH} Allan/Edmund/Pojim/WBK: How tips from employees caused run on Crane Bank - Business

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How Crane bank got into trouble

Written by JEFF MBANGA & ALON MWESIGWA

Crane bank branch in Kabale

Commercial bank's tale of survival ends in BOU takeover 
Crane bank, once the largest local bank in terms of assets, whose spectacular growth saw it spread wings to neighbouring Rwanda, a first for a Ugandan bank, has been taken over by Bank of Uganda.  

Consequently, the board of the bank, which includes property mogul Sudhir Ruparelia, its vice chairman, as well as the acting managing director, have been removed. A statutory manager, Edward Katimbo Mugwanya, has been appointed to run the bank on BoU's behalf.

There was enhanced security around Crane bank's head offices along Kampala road yesterday as Bank of Uganda Governor Emmanuel Tumusiime-Mutebile made the announcement at his nearby office.

The decision to take Crane bank under receivership was a culmination of a social media fire-storm that started last week with anonymous text messages advising clients to withdraw their deposits as the bank was in trouble. Bank of Uganda was forced to issue a half-hearted rebuttal in which the central bank simply stated it wasn't the source of the rumour but otherwise did little to assure concerned customers.

It was all left to Crane bank to defend itself with a second statement in as many weeks, reiterating that the bank was solid but only looking to be joined by an unnamed investor with whom discussions were on-going.

In the end, Bank of Uganda said in its take-over statement yesterday that the commercial bank, which only two years ago was the biggest local bank, had become "significantly-undercapitalised."

This claim appeared to contradict what Crane bank announced just over five months ago. Releasing its financial statement, which was audited by KPMG in May, Crane bank announced that its paid-up capital stood at Shs 210bn, which was almost ten times the BoU requirement of Shs 25bn.

Our sources within the central bank, who preferred to remain anonymous, told us that Crane bank's paid-up capital "is a subject of a forensic audit that shall be done by the statutory manager."

BoU says Crane bank's financial health had become so frail it held less than Shs 12 billion of the required amount – leaving the public with the troubling question of just who to believe.

Operations of the bank, which has an estimated 500,000 customers, are to proceed normally as the Central bank looks for an investor. Mutebile said BoU taking over management of the lender should give customers confidence that their money is safe. There are no limits on how much customers can deposit or withdraw.

As at the end of December 2015, Crane bank held Shs 1.3tn in customer deposits. On the impact it would have on the banking sector, BoU said it did not expect any. 

"The buyer [of the bank] can come as early as tomorrow [today]," Mutebile said. 

While much of the debate is likely to centre on the causes of Crane bank's downfall – a topic potent with all manner of conspiracy theories – a much broader discussion about the health of other banks is likely to ensue. An even broader discussion is about the general health of the Ugandan economy which has shown signs of ailing for many months now.

Crane bank's downward spiral appears to have become visible last year after the financial statement for the calendar year 2015 indicated a loss of Shs 3.1bn. This was a drastic departure from the Shs 50.6bn profit made in 2014.

The bank gave very little away in the brief notes to the 2015 accounts, although the numbers showed that the non-performing loans – money that the bank might not be able to recover – had shot to Shs 142.3bn in 2015, up from Shs 19.3bn a year earlier.

Property mogul Sudhir Ruparelia (R) at his bank

As at June 2016, Crane bank's non-performing loans stood at 14.5 per cent, nearly twice the market average of 8.3 per cent. But Crane bank was not alone. Standard Chartered bank had a terrible financial year too, recording a huge drop in profitability largely on account of bad loans.

However, while Standard Chartered bank could call on its international shareholders for support, Crane bank heavily depended on one man – Sudhir Ruparelia, its key shareholder. 
A SURVIVOR'S TALE

This was not the first time Crane bank's financial health had come under public scrutiny. In May 2005, there were rumours that the bank was closing, which led to many clients withdrawing their deposits.

At the time, Bank of Uganda came out strongly to defend the bank, saying it was well-capitalised. The rumour gradually died down and the bank appeared to grow from strength to strength.

As the bank embarked on an ambitious expansion drive, Bank of Uganda gave it a vote of confidence by offering it the assets of the National Bank of Commerce after it collapsed in late September 2012.

In 2014, Crane bank faced another tough job explaining the sudden disappearance of its long-serving managing director A.R. Kalan. The bank said that Kalan had asked for leave to attend to a sick wife. He never returned.

For a man who had been at the bank for more than 10 years, Kalan's departure appeared to set the bank a few steps back.

As rumours about Crane bank started doing rounds on social media, there were reports that Atlas Mara, which has bought a couple of banks in Rwanda, and is owned by Ugandan businessman Ashish Thakkar, and former Barclays Plc managing director, Bob Diamond, was looking to buy the bank.

Yesterday's move suggests the parties were unable to get a deal over the line, and Bank of Uganda decided to pull the plug on yet another local bank. 

The lingering question is how a bank that reported a profit of Ush65 billion ($18.5 million) in 2014 incurred a loss of Ush3 billion ($855,905) in 2015.

Insiders said the answer lies in the BoU changing its mode of inspection that helped bring more non-performing loans to light. In addition falsification to suggest loans had been paid, raised the capital that would need to be injected to $100 million.

While other banks were asked to recapitalise and obliged, Crane Bank was counting on a bailout which was ruled out after the bank removed some assets from the balance sheet despite wanting them to secure borrowing from the Bank of Uganda.

At this point the regulator advised Crane Bank to look for a strategic investor. Although several suitors turned up with Atlas Mara Group being the latest, Crane Bank main owners businessman Sudhir Ruperalia and White Sapphire, were holding out for a huge pay day.

In the Atlas Mara negotiations for instance sources said there was a valuation gap of $50 million between what the owners were asking for and the offer from the Bob Diamond-led group.

Another obstacle in the acquisition of Crane Bank is that its land and buildings are registered under Crane Management Services, a sister company engaged in real estate business. Under this arrangement, Crane Bank pays rental dues to its sister company and is obliged to clear rental charges covering five years in case it chooses to vacate these premises.

The regulatory management of Crane Bank, Uganda's third largest commercial bank by assets, with a balance sheet valued at more than Ush1.2 trillion ($342 million) by end of December 2015 has raised a dark cloud over the country's banking sector as many consumers raise fresh questions over the safety of personal deposits held by local players.

jeff@observer.ug
amwesigwa@observer.ug

How Crane bank got into trouble

http://www.observer.ug/news-headlines/47112-how-crane-bank-got-to-trouble

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