BoU to increase capitalisation after Crane Bank rescue
Monday October 30 2017
Bank of Uganda headquarters in Kampala. PHOTO FILE | NMG
The government of Uganda will have to inject additional capital into the Bank of Uganda after its core capital fell below the statutory minimum on the back of costs incurred in attempts to save the collapsed Crane Bank. The BoU recorded a loss of Ush72.5 billion ($19.8 million) in the year ended June.
The recapitalisation will cost the government at least Ush20 billion ($5,479,600) deficit after the bank’s core capital fell to Ush17.3 billion ($4.7 million) against a minimum requirement of Ush20 billion ($5.4 million).
The drop follows the decision by BoU to book the full amount it is supposed to recover from major Crane Bank shareholder, Sudhir Ruparelia, to taking Ush197 billion ($53.9 million), as an impairment.
BoU injected Ush472.5 billion ($129.4 million) into Crane Bank between October last year and June as intervention costs, of which Ush397.8 billion ($109 million) was outstanding at the end of the financial year.
The central bank also sold some Crane Bank assets to DFCU for Ush200 billion ($54 million), which will be paid over two and a half years.
Mr Ruparelia has put up a spirited legal and political battle against demands the the regulator, accusing the central bank of having failed in its supervisory role, which resulted in the collapse of Crane Bank.
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“The BoU will, require recapitalisation in line with Section 14(4) of the Bank of Uganda Act,” said BoU governor Prof Emmanuel Tumusiime.
As per the Act, the government is required to furnish the bank with securities to cover for capital shortfall or the bank can, in consultation with the finance minister, transfer cash from the general reserve fund to its capital.
The bank was recapitalised by the government last year through issuance of Treasury securities worth Ush100 billion ($27.3 million) following a Ush164 billion ($45 million) loss associated with foreign currency translation losses.
A depreciation of the Ugandan shilling against international currencies has seen it post “translation profit” this year, which was however wiped out by intervention costs in Crane Bank combined with a drop in operating income.
Interest income dropped by 56.1 per cent to Ush72.2 billion ($19.7 million) as a result of the decline of securities trading. Fees and commission earned fell by Ush9.2 billion ($2.5 million) to Ush56 billion ($15.3 million).