New details have emerged about why CDC Group one of the major investors and longest shareholders of DFCU Bank exited after a decade of business investment.
A high ranking official at DFCU bank who declined to be named because of the sensitivity of the matter told this investigative website that the reason why the British investors called it quit with the bank was in relation to the purchase of Crane bank in 2017 which was against their advice.
This official told us that CDC group was against the idea of the bank acquiring Crane bank ltd because of the flaws and illegalities surrounding its sell and takeover by the Central Bank of Uganda.
“CDC gave good advice to DFCU bank management saying it would still make profits like before without purchasing another bank but these guys refused to listen and went ahead with the deal. Instead they purchased problems”.
It is indicated that CDC’s advice was that the buying of another bank meant that there was a need for more liquidity to pay increased manpower in order to operationalize other Crane Bank branches which were already existing in every part of the country which has since proved very costly for the bank.
“The bank became overstretched because Crane Bank had at least a branch in every district in Uganda so it had reached a point that DFCU could no longer sustain the situation and it’s the reason very many employees lost their jobs.” He added.
It is further reported that after CDC realized that the bank was facing hard times and being threatened by court cases, it decided to sell its shares and watch from outside.
After half a decade of doing business with DFCU, CDC on June 14 wrote to the bank chairman Elly Karuhanga communicating its intention to sell its stake.
The company’s Investment Director in charge of Financial Institutions, Irina Grigorenko, said it was “undertaking a review of its investment in DFCU Limited which may lead to the disposal or some of some or all of its shares in DFCU over the short to medium term.”
Karuhanga and George Ochom the DFCU Ltd general manager while addressing the media in Kampala last week confirmed that the bank is currently in liquidity crisis.
The banks reportedly can’t find cash necessary for lending to its customers and that clients applying for loans are getting less than what they apply for.
Karuhanga said “We don’t know whether CDC group is running away completely or selling part of its shares so we don’t really know what is going on. They have not made it officially to us. If they make it clear we shall inform you”.
He also said CDC has been on an exit strategy and that reducing shareholding is affecting the banking operations.
Bank of Uganda sold a Shs. 1.3 Trillion Crane Bank Assets at just 200Bn to DFCU bank.
Crane Bank after being placed under receivership by the Central Bank in October 2016 was sold off to Dfcu on January 27th 2017 on grounds that it had become “grossly” insolvent.
But the Crane Bank shareholders said the Central Bank, disregarded a number of factors, breached several laws, and made a number of miscalculations before handing their Bank to DFCU.
The shareholders argued that the agreement which BoU entered with Dfcu, two days before the sale on January 25, disregarded their (shareholders) rights and flouted the provisions of the Financial Institutions Act.
They said that the Central Bank, in claiming under the agreement to care for depositors and creditors of Crane Bank, forgot its mandate of catering to the interests of the shareholders as well, as provided for under the Act.
The shareholders also highlight a number of loopholes in the BoU – Dfcu agreement, such as the fact that it doesn’t state the value of liabilities assumed by DFCU or the value of Assets taken over by DFCU.
The Agreement apparently does not state the amounts of money to be paid by DFCU as a net purchase price; or the payment terms for monies DFCU, or the assets (outside branches) that DFCU was taking over. It also does not itemize the list of assets acquired (save for leases)
The shareholders claim that the material terms of the agreement were “agreed fraudulently and secretly outside the agreement by BoU officials and DFCU officials.
After an outcry within the banking industry as well as the general public, government followed up the matter and launched an inquiry through the office of the auditor general which is expected to dig out the rot in the central bank’s regulatory operations.