By Our Reporters
Eminent economists have made a case demonizing the ongoing BoU probe by Abdul Katuntu’s Committee of Parliament (COSASE). Led by Oneg Obel, the economists recently appeared for a public debate ably moderated by Patrick Kamara. And to his credit, Kamara didn’t pretend to know much about the subject but instead allowed them time to exhaustively make their points. The economists were Obel, Makerere’s Dr. Fred Muhumuza and Abubaker Mayanja, a young man who equally spoke very well. They were joined via telephone link by Katuntu who was angry with Oneg Obel accusing him of unfairly bashing Parliament for doing its oversight work.
WHAT THEY SAID;
Obel said that, whereas AG John Muwanga’s audits are important, BoU’s independence was more important to prevent the economy from imploding. He said the best would be undertaking policy audits aimed at strengthening the all-important Central Bank as opposed to Parliamentary inquiry clearly aimed at humiliating the governor and other BoU officials, subdue them and make it hard for them to independently carry on with their monetary policy mandate. He warned this is dangerous for the country as a weakened BoU isn’t good for anyone. “Policy audit is what we need at this time otherwise the MPs shouldn’t become too territorial and too cleaver to have expert opinion on everything,” Obel said. Muhumuza said whereas commissioning the AG report was a nice thing for Parliament to do, Katuntu should be careful and ignore most of the areas Muwanga reported about. He called it veering off and going into things which accountants aren’t expected to do or to even comprehend. While he defended Parliament’s right to intervene and call BoU to order, Mayanja too called for caution fearing for the worst in case the Katuntu inquiry is used “to drag the governor and other central bank officials in the mud.” He said we need a strengthened central bank to comprehensively look into “the growing dollarization of the economy” which he said is something all must worry about.
The famed investment banker said while BoU isn’t without blemish, MPs are the least qualified to inquire into its operations in a process Katuntu will soon be commencing-focusing on BoU decisions related to closure of 7 commercial banks (Teefe in 1993 to 2016’s Crane Bank closure). Renowned for his insightful analysis, Muhumuza supported Obel and said it was detrimental for MPs to “prematurely read bad intentions” on part of BoU management regarding bank closures. Referring to Muwanga’s audit report regarding missing bank titles, Muhumuza said some of the blame being directed at the central bank is legitimate but the COSASE public hearings isn’t the best approach. Muhumuza and Obel’s fear is that publicly interrogating and demonizing BoU officials will have devastating effect on the economy. They said this will affect everyone including the MPs who some have accused of seeing this as an opportunity to posture before TV cameras to appease a skeptical public that remains angry with their bad performance. The duo also said the best Parliament should use Muwanga’s report to review legislation on financial sector and broaden BoU mandate is currently restricted on commercial banks. BoU should cover insurance as well because they are part of the finance system. Muhumuza faulted Muwanga for “veering off into things which an accountant can’t handle.” Reforms should aim at diminishing BoU’s role in direct commercial bank supervision “because it’s Board is structured more for monetary policy purposes.” Obel came in: “MPs lack adequate understanding of BoU’s work. You hear them say BoU sold this bank but the Central Bank doesn’t sell commercial banks as they are saying. It resolves them and all this shows their lack of basic understanding.” He added: “I trust that Governor Mutebile will handle them in the best way and just shun them if he sees they are uninformed. Their powers have been exaggerated and the Mutebile I know will know how to handle them best.” He faulted MPs for targeting certain BoU officials adding that he has a duty to speak out as a seasoned economist to ensure the situation is correctly understood. “It’s a unique institution and their interaction with the governor should be to seek clarification and not grilling.” Obel maintained that in the Commonwealth practice, it’s unheard of for Parliament to investigate the central bank. “The MPs can do oversight but not in this manner,” Obel said. They also referred to the timing of Parliament’s focus on BoU wondering why it’s coming after Crane Bank closure-and not any of the other closed banks. One economist said “this audit is suspicious because forensic audit isn’t done anyhow.” Muhumuza explained why BoU had favorably rated CBL 7 months to its closure: “In a bank things can change in a small time and it’s not like rating Mulago hospital; BoU decisions are based on objective judgment. A bank might be adequately capitalized today and become undercapitalized a week after. Things change very fast.” He added that for incompetence and poor judgment, Mutebile will be justified to decline answering MPs’ questions.
Mayanja differed and hit BoU saying it had failed in its own vision and mission to ensure price stability and sound financial system. He said at 16% Uganda’s saving culture is among Africa’s lowest and therefore had no kind words for BoU. “BoU is created by an Act of Parliament and shouldn’t stay away from MPs. They have a legitimate right to question its work. We have only 5m bank accounts and this reflects failure on them as opposed to over 20m mobile money accounts. There is a lot they haven’t done including failing to reach out to the academia for innovative ideas to do better,” said Mayanja adding he expected a more comprehensive audit report than what Muwanga delivered. He added that to effect the improvement the AG proposed, BoU needs MPs to appropriate increased funding which is why BoU should avoid confrontation with Parliament at this point in time. Insisting its incompetence to favorably rate a bank 7 months to its collapse, Mayanja said BoU was too harsh collapsing Crane Bank. “This is not how regulators acted in the west during the 2008 credit crisis. We are talking about the 4th largest bank which is also a big player in the forex market. Clearly sinking it would cause instability,” he said. The young economist also argued the Crane Bank goodwill was undervalued when selling to DFCU. He insisted the BoU governor has too much powers for no good, something Muhumuza objected to. “He is powerful but that is for monetary policy stability purposes and not for bank supervision. It’s also unfair to say they praised Crane Bank 7 months earlier because a bank can be strong in January and collapse in February.” He also rejected claims that CBL was undervalued adding that CBL was in such a bad state not many buyers were interested. “DFCU wasn’t the only bank that bided to buy CBL. Many pulled out on realizing there wasn’t much and it’s not only about money but also capability to run what had become the 3rd largest bank in the economy.” Obel returned accusing MPs of “making themselves the Jack of all trades and wanting to do to BoU things that are unprecedented instead of benchmarking on other jurisdictions.” Obel said the MPs shouldn’t take themselves to be “too cleaver” and didn’t spare Muwanga. This is what he said: “[The AG] is good at many things but the Central Bank is a different thing altogether.” Obel said the “IGG too is very good but investigating the Central Bank? That is unheard of.” Admitting “BoU isn’t picture perfect,” Obel said opening it up “to political assessment will cause us problems because once you do that every Tom, Dick & Harry will begin to attack the Central Bank.” Aiming at MPs, Obel said: “Yes BoU can be audited but in totally a different way and you have ask and consult elsewhere to be advised on past Commonwealth regarding things you don’t know.” He said he was operating on the assumption that the MPs are acting in good faith as opposed to being motivated by some other things. Mayanja got back and disagreed with his two seniors. “Granted there is limited knowledge on central bank operations in Kampala but it’s strange that BoU resolves a bank and 15 years later there is no resolution report. Banks are failing because there is are macroeconomic stability problems and BoU lacks expertise in some areas. It’s not up to date with best practices. Does it have the right systems in place? I think no. When it comes to settling a bank, I think it lacks expertise and must have a transaction advisor for tangible assets valuation. There is an unstable micro economic environment to which BoU’s ineptness has contributed and that environment led to the CBL failure,” he said. “On the IGG investigating BoU; she obviously can’t but can investigate individual officials.” He said MPs don’t have to know much about BoU to do a good job because its good practice to hire experts to give technical back up throughout the inquiry. In any case Parliament already has technocrats in different fields. Mayanja also questioned competence of BoU management. He said: “Central Banks globally make profits but why is ours making losses in the same year when Stanbic bank made Shs120bn in profit? This shows problems at BoU.”
Sounding unusually furious, Katuntu took strong exception to what Obel said. “I’m very disappointed with my old friend Oneg Obel. Does central bank independence mean not being accountable? To whom does BoU account? You are saying Parliament is incompetent but it’s us who exposed those weaknesses you are now debating? Was it not Parliament that ordered the Auditor General audit? They have closed 7 banks and there is no single resolution report. Oneg Obel should stop despising and scandalizing parliament because it’s the one which exposed the rot at BoU for the first time since independence. If Parliament doesn’t raise these accountability queries on behalf of the people, then who will?” he wondered before urging Obel to discuss substance of the AG report rather than calling MPs incompetent. “If we were what you are calling us we would proceed even without first sending in the Auditor General but because we are smart people, we had to have it first. If you say BoU can be audited but not in the way we are doing it, what’s that other option you are talking about?” Obel responded saying being a well brought up person, he wasn’t ready to roll in mud with Katuntu. “Asking questions is okay but what is not okay is the drama of Parliament because as an investment banker I’m not comfortable with it. BoU is the lead monetary policy institution for this country and doesn’t deserve it.” He said he is duty-bound to defend the BoU’s integrity because past governors Leo Kibirango and Kikonyogo supported him a lot while building and strengthening Uganda’s stock exchange and capital markets. “We worked hard to succeed and yet we are now working towards losing everything.” He insisted BoU never closed any bank because it hated proprietors “because all these banks had capital inadequacy and insider lending issues which you [MPs] are now trying to hide as if closure was for some other reasons.” He said BoU must be defended because “it’s the only institution in Uganda running with international repute.” He agreed with Muhumuza that COSASE should have the “meet and greet” sessions with Mutebile without having to make him answer everything in the AG report. “You don’t summon a governor like that and drag him in the mud. You can do the way you have previously met the President and interacted with him as an elder.” Muhumuza said CBL made its own mistakes including lending politically exposed individuals against whom it was impossible to foreclose (attaching security assets). He gave the illustration of an army commander or even the IGP being lent and wondered which bailiff would go foreclose against such a borrower where you clearly need police or military back up for such operations. “Such properties give security with no value to the bank because you can’t foreclose and that can’t be an audit issue. You are dealing with security on the books but without value because you can’t foreclose it,” Muhumuza said. Katuntu then weighed in saying: “I’m glad you [Obel and Muhumuza] are just saying questioning BoU could be done differently but you aren’t saying how that could be done within the law.” Obel shot back: “You will know how to do a good job without openly humiliating the governor. I don’t know how exactly but I’m sure this isn’t the best way to do it.” Mayanja said BoU’s fallibilities notwithstanding, MPs should meet BoU bosses in camera “for purposes of financial stability concerns otherwise the financial system can implode very quickly and cause mayhem in the entire economy.” Obel said the Act provides for internal accountability mechanism via the Board and its committees meaning Uganda can do without Katuntu’s inquiry. For comments, call, text or whatsapp us on 0703164755.