By Kiyimba Bruno

Barclays Bank Branch in Iganga closed recently and I was not surprised it did. But I was shocked the first time I saw it there. This expansion then that led to Barclays bank to open a shop in Iganga was due to some CEO who felt that the bank had to compete through branches. Barclays bank has no clients in places like Iganga. It is possible that their study didn’t reveal this to them (Mr. Sudhir Rupareria says you do not need studies, use gut feeling) in any case, both did not work for Barclays Bank. It is not surprising that they closed. The current downturn in the economy could not leave Barclays bank to afford the luxury of branches.

Crane Bank has been taken over by the Bank of Uganda (BOU), the country’s central bank, main reason is non-performing loans of shs 142.3billion in 2015 that increased from shs19.36 billion in 2014. Bank of Uganda requires banks to make provision for non-performing loans against profit. Why the loans increased, we are yet to find out. Who took the money will also be another story. But it is downturn in the economy business close. Who closes those that are inefficient or poorly managed? If Crane Bank in that category, it must be when you go to analyse how it has grown and how it is managed.
It is not surprising that Crane bank is in worse trouble. While it has not closed, it has had a run on it. If it had been a developed country with government support, Crane Bank would have a life. But Crane Bank in the minds of Ugandans may not survive the challenges it is facing. Crane bank has grown over the years probably what no other bank did in the Museveni era. It has built branches all over the country but I guess that whoever is managing Crane Bank now will find that these buildings are not owned by the bank! Some other company owned by Sudhir must be the land lord. When you become as rich as Sudhir has been, you must have survival strategies. This is one.

I was part of the Bank of Uganda (BOU) when Uganda Commercial Bank (UCB) was finally resolved. UCB was bought by Standard Bank of South Africa after the fiasco of purchase by local Ugandans. The first deal that bought UCB from government was local investors using other people’s money in a bank to buy another bank. Of course this was not right, it is not surprising that it went bad and the Bank of Uganda seized UCB and sold it to Standard Bank of South Africa who renamed it Stanbic. When negotiating the agreements with Standard Bank, they raised the issue of branches, they felt that if they were to operate branches in the country, they needed to be subsidized. Of course, at that time they didn’t give a thought to technology, making it easy for people to transact business and lowering cost of managing customers. Mobile money was not widespread. The story is different today Stanbic opens branches without subsidy but it doesn’t own building. We were bashed for resolving UCB but thank God, Governor Tumusiime Mutebile is not someone to intimidate easily. Like Ugandans always do, they suspect everything, good or bad and will drag in names of top politicians in the country in any transaction that appears to transfer wealth. Stanbic today is a very healthy bank and is performing well.

Uganda is a small market but has 26 banks, like in any sector, you usually have a market leader or a few market leaders and niche players and followers. The foreign banks have been market leaders for obvious reasons. They are the banks of MTN, Shell and all companies that have lots of money. There is not enough business to go round for these 26 banks profitably. Some are international banks which is both an advantage and a disadvantage for them. The advantage is they have management and IT platform support from abroad. The disadvantage is that they make a profit of UGX 30billion. It is less than USD10milion, shareholders abroad are not impressed. When Crane Bank entered the market, it came in as a local bank. Sudhir is a very shrewd businessman and that is one of the reasons why he has been profiled by Forbes. If he was not, he would not raise to the fame he has in only 30 years without a business that is feasible. The current write-ups and talk in town about how he acquired property is something everybody appears to know but nobody talks about it openly in public. Timothy Kalyegira writing in the Sunday Monitor of October 23, 2016 “Crane Bank was virtually untouchable. It could not be written about by the media in anyway but the positive and the flattering.” it seems everybody talks about the problem but we could not talk about it. In management, when the grapevine takes over the organization is in trouble. Not surprising for Crane Bank. Sudhir admits that he has over 300 property titles and owns more than 10 buildings in Kampala road. Actually according to an interview in Sunday Red pepper, Sudhir does not know how many properties he has. Sudhir worked his way through networks to collect deposits from various government departments. You know how to get a government account, if I am not mistaken all teachers have their bank accounts in Crane bank. I heard one say they are charged money for reopening the account every time the government salary comes. It was difficult to refuse to open an account with Crane Bank and this probably was the cause of the problems the bank has had. Besides the government accounts, crane bank had a large number of the Indian community banking with it. It is only natural that the Indian community would bank with Crane bank, indeed a large number bank with Bank of Baroda for obvious reasons. Remember a large number of successful businesses that are medium to large size in the country are owned by Indians, there was no reason why crane bank would not grow its deposits.

Crane Bank’s phenomenon growth appears to have been a cause of its failure. Having been one of the small banks in the country, it would have grown only out of swallowing other banks or merging with other banks, however, it did it on its own through networking. If you go through the deposit growth rates of different banks in the country, you would clearly see who the losing banks were. The growth in the deposit rates was also followed by growth in lending by the bank, banks don’t have their own money. Banks use people’s money to run business and banks make money by lending it out. Crane bank was thus able to lend out money but who did they lend it to. In one of the recent bank failures, the bank management who were the owners borrowed bank money off the balance sheet to fund their own activities, they were using depositor’s money. This bank had to fail. Lending customers money to the owners of the bank is inside dealing and extremely dangerous for the financial sector. In one of the newspaper articles, it is said that Crane Bank owners were taking out money allegedly to pay suppliers. Bank deposits belong to the customers, not the bank. It will not be easy therefore for this bank to recover. When people lose interest in the bank and there is a run on it, it is not easy for that bank to recover. As the bank is recapitalized, customers will take away their money and since bank operates on customer’s money, the bank may end up without customers. Without customers, you don’t have a bank. The current run on crane bank may see it being wound up or bought by another bank.

So what is the real cause of the failure?
There are many suspected causes. Of course the current downturn in the economy is one, the others can be established after BOU has diagnosed the banks activities. I believe that the cause of the failure was ambitious expansion, poor management, ruthless competition with other banks coupled with fear by the owners that their fortune through the bank was too exposed and taking the market, government and regulators for granted. Mutebile as a regulator can never be taken for granted. If you see the rate at which the Crane Bank owners have acquired buildings and set up property in the country, you would expect that there is a wonderful management group behind it. Unfortunately it appears there was not. The Rupareria Empire was managed by Sudhir and his family members. This created the difference between many of our local institutions and the international ones. While Barclays bank has had challenges, it still had somebody to report to who had thousands of shareholders behind it and those shareholders will not allow the bank to go the way Crane bank is gone without action. You cannot be the country’s 4th largest bank and you do not have professional managers. You cannot be east Africa’s richest individual without top notch managers and consultants. True the owner of Crane Bank are shrewd people but the magnitude of the investment required more professionals.

I don’t subscribe to the ongoing regulations that require top executives of even private companies to have certain qualifications. It is a good regulation intended to professionalisemanagement but I do not agree with it for the CEO. This should be for government companies. I believe that entrepreneurship is not based on qualifications, neither is entrepreneurialmanagement. Qualifications are important in as far as having technical issues resolved. The chief executives of the banking sector are required by our law to have certain qualification but may not have a business acumen required to run a business. This may be one of the challenges Crane Bank has faced possibly along with other banks especially those in the private sector, it is not surprising that it is only local banks that have been experiencing irredeemable challenges. It is possible that conflict between top management and owner as partly to blame.

Management arrangements for international banks are different. Usually these banks have management systems in place that ensure that the organizations are managed well. Local private banks normally depend on the owners and the individuals they trust whom they appoint in place. To manage the Sudhir Empire required top managers not trusted friends. Fortunately, the Bank of Uganda has evolved early warning systems that tell you when a bank is failing. Indeed there is evidence that Crane Bank was in trouble. The actual cause of its failure can only be suspected, it may not be very different from the cause of failure of other banks in the past. Over lending to people who didn’t deserve the loans, failure to understand the environment in which the bank has been operating. Possible cases of taking things for granted, not so many people in the country can call the president and actually talk to him on the same day. A few people in this country can do that and Sudhir as one of the largest investors in this country has that access.

Unfortunately, this is now not a case of investing but managing a bad investment. I would not take that call. Sudhir grew his business in a vulnerable environment. Poor people are normally vulnerable. Poor people are used to being given and even those in authority are also vulnerable. They give big favours when they are given something small. Sudhir returned to Uganda in 1985 and he started by selling beer and later importing it from Kenya. He dealt in foreign exchange and by the time government liberalized the economy to legalise the sale of foreign exchange he was the largest dealer and opened the first forex bureau. The forex bureau led to the bank, the bank led to the acquisition of property. It is said that it is property of those who failed to pay that Sudhir started off with. Working in an environment where people are gullible, it makes you grow a huge ego. This is seen in the tone of Sudhir’s interview that appears in the Red pepper of Sunday October 23, 2016. I am also in shock that as a banker and as a responsible person, Sudhir is said to have called customers in the country to withdraw their money from banks. Either Sudhir does not want to go down alone or continues to have that feeling that these gullible people will never know his intentions. I have seen in the papers an accusation leveled at the bank of Uganda officials for having private interests and being corruptible. This is false in my opinion. Bank of Uganda under Governor Mutebile would not do that. It is possible the supervisors did not warm up. The Crane bank’s request to defer the BOU decisions. I have argued elsewhere that Business failure is good for the economy. Businesses can fail but entrepreneurs do not fail. If Crane bank is a high cost service provider, it should go down. Customers need high quality well serviced services. I believe the rest of the 25 banks can fill in the gap.
The questions however are, how did Crane bank get into this mess? It seems Sudhir Rupareria’s story has just began. We now have a case not of an investment but managing a bad