BOU Puts Its Foot on Ground in NBC Saga

Uganda’s Central Bank has put its foot on the ground and said a court order barring it from retaining control of the defunct National Bank of Commerce does not hold.

In a statement at the weekend, BOU Deputy Governor Louis Kasekende said the court injunction obtained by the Bank’s shareholders can only maintain the status quo.

BOU closed the Bank last week and transferred all its depositors to Crane Bank Limited. They cited activities on the part of its shareholders that they deemed detrimental to its depositors. The bank’s main shareholders are Ugandan Premier Amama Mbabazi, ICT Minister Ruhakana Rugunda and businessman Amos Nzeyi.

Below we reproduce the bank’s statement:

“Yesterday the Bank of Uganda intervened in the National Bank of Commerce, taking it over and closing it and then transferring its deposits and some of its assets to Crane Bank Ltd through a purchase of assets and assumption of liabilities operation. The assets and liabilities not transferred to Crane Bank will be placed in liquidation. The purpose of the BOU’s intervention was to safeguard the deposits of NBC. This has been achieved. All of the deposits of NBC have been transferred to Crane Bank and NBC’s customers will be able to access their deposits from Monday 1st October; they will be able to maintain deposit accounts in Crane Bank or withdraw their deposits if they so choose.

In its role as bank regulator, the primary objective of the BOU is to protect the interests of depositors as far as is possible. The interests of depositors take precedence over all other considerations.

NBC had been suffering financial distress for more than two years. Since the middle of 2010 it had incurred continuous losses. Nearly half of its loans were non performing. It had achieved no growth since 2008 and its market share of deposits had fallen to 0.08 percent, far lower than any other bank in Uganda. Had it remained in operation, its losses would have continued to mount, which would eventually have depleted its deposits. In addition, disputes between the bank’s major shareholders proved to be a serious obstacle to effective governance and management and public confidence in the bank. Closing the bank now, before further losses are incurred, ensures that there are still sufficient sound assets in the bank to cover all of its deposits, thereby allowing these deposits to be repaid in full.

The BOU has made repeated efforts to persuade NBC’s shareholders to take the remedial actions necessary to restore the bank to financial viability, including resolving the shareholders’ disputes. The limited measures taken by the shareholders, such as injecting new capital, have not been successful in stemming the losses and restoring the bank to viability. As a consequence, the BOU was left with no other option to safeguard the interests of NBC’s depositors than to close down the bank.”

Louis Kasekende (PhD)

Deputy Governor