MPs last week asked the police and Inspector General of Government to investigate Uganda Development Bank Limited officials who managed the contested and non-performing trust loans that were given to Apparel Tri-Star (U) Limited and Phenix Logistics Limited.
Parliament’s resolution follows the sacking of the former UDBL management, by the new board of directors, led by Dr Samuel Ssejjaaka, for presiding over the loss of more than Shs 20bn, which was lent out as trade finance loans.
The dismissal followed an investigation by the Auditor General (AG) and, subsequently, by MPs on the committee on Commissions, Statutory Authorities and State Enterprises (COSASE), which discovered financial mismanagement.
“There was no signed agreement between government of Uganda and UDBL regarding these trust funds and who was to bear the loss in case of default by the borrowers. Besides, there was reluctance in follow-up and recovery of the disbursed amount on the part of the bank,” says the COSASE report, which was read to Parliament by chairperson Patrick Amuriat Oboi (Kumi).
According to the AG’s report, the trust funds, which the committee omitted to report in its findings, were received by UDBL from government from 2003, as loans and were not reflected in the bank’s assets.
An agreement on administration of these funds was signed between the bank and government on March 26, 2006. It required the bank to charge an agency fee based on the interest earned from borrowers as well as recharge all expenses incurred in the execution of their role as the agents, retrospectively from May 9, 2001.
However, the AG notes that whereas UDBL had entered into loan agreements with the various borrowers of these funds, the loans were not serviced. Some of the affected borrowers included Apparels Tri Star (U) Limited, Phenix Logistics Limited, Rutas Limited and BM Technical Services Limited.
MP’s findings
The committee noted that UDBL was simply being used as a conduit to pass over money to these entities on written criteria, best known to officials in the ministry of Finance.
“The bank was not given an opportunity to carry out due diligence as to the credibility of borrowers of trust funds. Government imposed borrowers on the bank without consideration of their financial status and ability to pay back,” the committee’s report reads.
The committee report recommends that the bank should always have formal memorandum of understanding with the government on management of bad debts that are mainly emanating from trust funds.
“In all transactions, the bank should adhere to its lending policy when handling trust funds. The government should allow the board and management to run the bank’s operations professionally. The bank’s lending policies should guide the disbursements of trusts funds without interference from government,” the report says.
The committee also observed that between 2001 and 2004, UDBL received over Shs 10bn from government without any formal agreement reached which was, therefore, impossible to determine whether such funds were equity, donations or loans.
Besides, Parliament has also recommended the bank to attach the property of Basajjabalaba Skins and Hides Limited to settle the defaulted loan settlement of Shs 5bn owed by the company to the bank.
Established in 1972, UDBL is Uganda’s major development finance institution. The bank has recently re-positioned itself as a partner to the government in delivering the theme of its National Development Plan (NDP): Growth, Employment and Socio-Economic Transformation for prosperity.
“In order to deliver this aspiration, the bank has refocused its operations and will only play in the key growth sectors as identified in the NDP and will source funding to finance socio-economic transformation activities at attractive terms. The bank shall, therefore, work to develop a niche market for long-term development finance,” reads the bank’s vision.
However, the committee, on reviewing the bank’s vision and achievements from 2001-2010, it was noted that as at June 30, 2012, the bank’s outreach had remained concentrated in Kampala city (56 per cent), compared to other regions of the country.
In the same period, it was indicated that the bank’s exposure to agriculture and fisheries was only 31 per cent of the total book values yet agriculture employs more than 80 per cent of Ugandans.
“The bank should work out modalities for increment of funding towards the agricultural sector. In addition, its outreach across the country and in key strategic sectors needs to be broadened with the view to promoting balanced development in the country,” the committee notes.
The COSASE report comes at a time when three senior bank officials are facing court proceedings for victimising a whistleblower.
The whistleblower was concerned about the way the UDBL management was handling a $11.5m (about Shs 30bn) loan application by Savannah Commodities Limited.
skakaire@observer.ug