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Cheating customers a risk to banks

By John Odyek

Added 21st November 2016 03:34 PM

"Bank of Uganda should blacklist such people. There are professional fraudsters," Ochieng, an economist said

Cheating customers a risk to banks

Emmanuel Mutebile, Bank of Uganda governor

"Bank of Uganda should blacklist such people. There are professional fraudsters," Ochieng, an economist said

Prof. Erisa Ochieng, a former board chairman of Global Trust Bank (U) Ltd has said one of the causes of bank failures in Uganda is people who borrow money from banks with no intention of paying. Bank of Uganda on July 25, 2014 seized the bank, revoked the license and closed it. Bank of Uganda then sold it to dfcu Bank Ltd.

Ochieng cited a case where a Uganda brought two land titles to the bank. He said on one title sat a house worth billions and the other had no structure on it.

When the borrower secured one billion from the bank, he deceived the bank that he had deposited the title with the house, yet it was the vacant plot. He disappeared, claimed to have failed to pay the loan. The bank moved to sell the house but found a vacant plot and made a loss.

"Bank of Uganda should blacklist such people. There are professional fraudsters," Ochieng, an economist said. A few years ago he served as head of the department of Economics of Makerere University. He is an ex director for export policy analysis and development unit and also advisor to the Secretary to the Treasury.

Ochieng was contributing to a discussion on causes of commercial bank failures. The discussion was organised by the Makerere University Business School Economics Association on Thursday.

Ochieng added that one reason for non-performing loans was giving short term loans at high interest rates to finance long term projects. He said long term projects need loans of lower interest rates paid over longer periods of time

Ochieng also said some bank owners create companies that they lend to in effect lending to themselves. In addition to that, he said some banks deal with a few big companies and when these big companies face problems including the ones they own, the banks face closure.

Dr Ezra Suruma, chancellor Makerere University, the key note speaker, said when he was shareholder of the Kigezi Bank of Commerce which started in 1992 with a capital of sh300m.


"By 1993 half the capital of the bank amounting sh150m had been stolen by workers. Many banks have experienced out right theft and fraud, bad ethics and these have been a source of their failure.


When I was managing director of UCB, I realised the branch managers were kings of the branches, they would lend to themselves over the weekend, return money and sometimes they don't. I regulated against that," Suruma said.


Suruma argued that five top banks have created an oligopolistic situation, where they dominate the market, maintain the biggest share deposits, and control interest rates. He said a scenario poses the risk of bank failures and lower access to financial services.


 "The absence of competition leads to corruption, before you get a loan you may need to bribe someone. We need competition laws in the sector," Suruma said.

Suruma called a situation where Ugandans can be able to open banks. "The probability that a Uganda can start a bank with a capital requirement of sh25b to sh30b is zero. You could start a micro-finance at sh500m. There is a dominance of foreign banks, 80% of the banks are foreign, they are controlling our blood, money is the blood of an economy, and Ugandans can't remain observers in the sector" Suruma said.


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