On Friday 25th July 2014, Uganda’s Central Bank, Bank of Uganda (BOU) revoked the license of operation of Global Trust Bank (Uganda) Limited (GTB) and thus shut it down with immediate effect. This followed reports that the bank was continuously accumulating loses and that this would endanger customer deposits. Governor of Bank of Uganda, Prof. Emmanuel Tumusiime-Mutebile at a press conference gave a number of reasons for the closure of Bank.
- The bank failed to become commercially viable. Since it was established in 2008, GTB incurred persistent losses, which accumulated to Shs 60 billion. There had been no improvement in the bank’s financial performance in the last five years and no realistic prospect that it would ever become profitable in the future. In addition, there were serious deficiencies in the governance of GTB and the accuracy of the financial information it reported to the BOU.
- No commercial bank can survive indefinitely unless it is profitable. As such, GBT’s continued operations as a loss making bank would have posed a serious risk to the safety of its deposits. Therefore the closure of GTB was necessary to protect the interests of its depositors.
- GTB was one of the smallest banks in the Ugandan banking market with a deposit market share of only 0.5 percent. It had minimal links with other commercial banks. As such there is no danger that the closure of GTB will have any adverse effects on the rest of the banking industry in Uganda.
- By acting expeditiously in closing and resolving GTB in accordance with the Financial Institutions Act, 2004, the BOU has achieved two of its core objectives. It has ensured the safety of the bank’s deposits and it has minimized disruption to the bank’s customers.
- To ensure the minimum of disruption to GTB’s customers, the BOU has arranged for the transfer of all of its deposit accounts, which amount in value to approximately Shs 73 billion, to DFCU bank. Customers will be able to access their deposits when DFCU bank opens for business on the first working day after closure. DFCU bank will also honor all cheques drawn on depositors’ accounts provided that there are sufficient funds in the applicable accounts.
- As well as assuming all of the deposit liabilities, DFCU bank will acquire some of the assets of GTB such that the value of the liabilities it assumes is matched by an equivalent value of assets. DFCU bank will acquire most of the loan book of GTB together with its investments in Government securities, some of GTB’s cash balances and some of the fixed assets.
- The employment contracts of the staff of GTB will be terminated. The staff will be paid all their outstanding entitlements from the proceeds of the liquidation. DFCU bank may employ some of the staff on new contracts.
- All other assets not acquired by DFCU bank will be placed in liquidation. Any value realized by the assets of GTB, over and above the value of its liabilities and the costs of the liquidation, will accrue to its shareholders.
- DFCU bank will take over six of the branches of GTB, in Bwaise, Kikuubo, Nateete, Owino, Paidha and Pallisa. DFCU bank will serve the customers of the other 15 branches of GTB from the existing branches of DFCU bank in nearby locations.
- The BOU cannot prevent commercial banks from failure – bank failures occur in all countries – but it will strive to ensure that if, and when, banks fail the losses incurred by their depositors and the disruption to their customers are minimized.
The largest share of the bank of 45.3% is owned by the largest Nigerian insurance company Industrial and General Insurance Company Plc (IGI), and the remaining 54.7% belonged to corporate investors and individual investors. By the time of the closure of GTB, Morenikeji Oludotun Adepoju, a Nigerian by national, was Managing director.