“When the Governor (Tumusiime Mutebile) brought to my attention of the problem Crane Bank had, I rang Sudhir,” said Kasaija, who is well known for not mincing words.
“I said ‘Sudhir, I don’t want your bank to go under. If he was here he would testify. Because, when it goes under, it reflects very poorly on the economy,’” he added.
“If the outside world hears of this kind of thing, the economy is not benefitting.”
Speaking to COSASE, a Parliament Committee investigating defunct banks, Kasaija further narrated his conversation with Sudhir.
“The [Central]Bank is telling me that your bank is undercapitalised, I know you own some properties here in town, would you mind to sell off some of those properties?” Kasaija told Sudhir.
At the time, Bank of Uganda had given Sudhir three months to capitalize the bank which had a hole of about Shs 400bn.
In response to Kasaija’s advice, Sudhir responded: “No, Minister I am fed up, let the bank go.”
The Finance minister added: “Please, can we save this bank’?” but never succeeded in changing Sudhir’s mind.
Kasaija had just come under intense grilling by COSASE over why government was not being generous to local banks whenever they face liquidity or capital challenges.
The Minister said such a situation was unfortunate but bank owners were partly to blame for the challenges faced.
Kasaija’s remarks corroborate former Capital Markets Authority boss Joseph Kitamirike’s analysis showing Sudhir tactfully allowed Crane Bank to go under so as to save his real estate empire.
Sudhir Ruparelia founded and ran the Bank for over two decades, growing it into the third largest Bank in Uganda.
Crane Bank became the flagship entity in his business empire and was instrumental in elevating Sudhir, his family and some of his other businesses.
Kitamirike said Sudhir could, through the bank, access financial resources to build his real estate empire.
“Over the last 10 years, the family consolidated their real estate and hospitality businesses. So when BoU injected over Shs 450bn into Crane Bank after it became insolvent, it ensured that his real estate business remained largely intact,” said Kitamirike.
He said if Sudhir had continued to own and run the Bank under his empire, given the high level of Non- Performing Loans (more than 50%) which starved Crane Bank of cash flow, he would have been compelled to inject at least US$ 100 million in capital to continue trading.
“Such an injection would possibly have constrained his ability to grow and sustain the rest of his business empire,” said Kitamirike.
“In a way, by letting the Bank collapse and not diverting capital from his other businesses, the first winner in the resolution of the Crane Bank transaction is Sudhir.”
A due diligence report showed a high number of non-performing accounts (some identified, others unidentified).
Based on Financial Institutions Act (FIA) classification, 50 percent of Crane Bank loan book was non-performing.
Additionally, CBL’s net asset position was negative meaning that the liabilities far exceeded the assets (Shs 589) billion as at 20 December 2016).
The bank had also faced significant liquidity challenges during the course of 2016 and had obtained liquidity support from BoU in excess of Shs 350 billion.
Kitamirike observed that a delay in the resolution of Crane Bank and allowing it to proceed to liquidation would have undermined public confidence and exposed many businesses to collapse.
“In the time it was placed under statutory management, BoU kept Crane Bank afloat, ensured system-wide stability and found a buyer for the assets and liabilities of Crane Bank,” he argued.
Kasaija’s revelations also contradict Sudhir’s earlier claims that Bank of Uganda didn’t do enough to help him salvage the financial institution.
Meanwhile, Kasaija said government would require Bank of Uganda to provide regular reports on commercial banks.
“We have never had a deep study to investigate what is not going well in the financial sector,” said Kasaija.
In response, MP Hon Anita Among noted: “May be we need an independent board to supervise the central bank.