DFCU bank is in liquidity crisis, the bank chairman Elly Karuhanga has confirmed. The bank reportedly has no cash necessary for lending and paying its customers. It is further indicated that clients applying for loans are getting less than what they have apply for.
This was disclosed by Elly Karuhanga the bank chairman and George Ochom the DFCU Ltd general manager while addressing a crisis media briefing at Kampala Associated Advocates offices in Nakasero Kampala. Ochom explained that liquidity is very critical in the bank market and said that banks can’t operate normal business without enough liquidity.
“Liquidity is very critical in any bank. Really it is critical in the interbank market because you know there are always payments that go for daily basis so in normal cause of banking business there is a lot of movements of funds.” Said Ochom. He further narrated that banks have to maintain certain liquidity ratios in order to be able to pay out their customers.
The bank officials’ remarks followed after the bank’s largest investors who have been maintaining about 60% shares started selling their shares remaining with only 10% shares. “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 to us we shall inform you”. Karuhanga said.
BoU summons DFCU top managers
Bank of Uganda (BoU) Director for supervision Tumubweine Twinemanzi on Monday afternoon had a crisis meeting with the management of DFCU Bank in a bid to determine the latter’s financial position and liquidity assurance as two of its shareholders pull out of the bank.
MbararaCityNews recently reported that the Commonwealth Development Corporation (CDC), Britain’s oldest development finance institution has elected to opt out of its investment arrangement in DFCU bank.
The Chief Executive Officer of Arise Holdings Ltd, which is DFCU Bank’s biggest shareholder, also resigned from the bank’s board of directors, throwing the future of the financial institution into more turmoil.
The bank’s troubles stem from the controversial acquisition of Crane Bank, the then 4th largest bank on February 27, 2017 at a fee later to be discovered as a paltry Shs200 billion. Following the takeover in January 2017, DFCU Bank at the end of December announced net profit of Shs127.6 billion, Shs81 billion higher than what it recorded at end of December 2016
Board Chairman, Mr. Karuhanga while on Capital Gang radio Programme explained that CDC has been on an exit strategy and that reducing shareholding is normal but may affect the bank operations. Reports also show that ever since Dfcu bank controversially acquired former Crane bank from bank of Uganda receivership, bank management has been struggling to manage business countrywide and that a big number of employees have since been shown exit.
After half a decade of doing business with DFCU, CDC on June 14 wrote to the 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.”
The institution said after being a shareholder for half a decade, “it is our aspiration to exit in a manner that causes minimum disruption to the business and ensures the orderly trading of DFCU’s shares.” Irina also indicated that CDC’s objective is to identify “like-minded investors who could support DFCU in its new phase of growth.” The withdrawal of CDC leaves DFCU bank in crisis with nothing but to close down business or be taken over by bank of Uganda.
The bank is accused of fraudenltly acquiring former Crane Bank ltd at just shs 200m in connivance with officials at Bank of Uganda even after the bank boasted of assets worth trillions of shillings. The legal battle is currently at Commercial courts in Kampala. Its crisis was further deepened by the resignation of Deepak Malik the Chief Executive Officer of Arise Holdings Ltd which is its biggest shareholder.
Arise Holdings has 58 percent shares while CDC is DFCU’s oldest investor and the two jointly set up the bank with the Government of Uganda in 1964.
Bank of Uganda sold Crane Bank to DFCU in a secret deal which only revealed a buyout of sh200 billion when the bank had assets in the excess of a trillion shilling. The deal however was sealed against basic business practice, including excluding the shareholders of Crane bank. It later emerged DFCU was continuing to pay Bank of Uganda money after loan collection which was part of the unwritten deal.
Dfcu bank enters a critical stage as the future looks uncertain after majority shareholder Arise B.V let its CEO leave.
Why Investors running away from DFCU
Observers say Deepak Malik might be acting under pressure following the tight grip on financial sector, including international organizations following up on fraud.