The other day Professor Ezra Suruma published an opinion on
how the banking industry is being remote controlled by neocolonialists, who
have no interest in promoting the mobilization of indigenous capital by among
other things shutting down local banks and making it too expensive for local
businessmen to open banks.
He said as result local business struggle to access capital.
These were strong charges by a former deputy governor of the
Bank of Uganda and former finance minister. They need to be taken seriously.
For people coming to the discussion late a look back into
the history of the banking sector and how we got to where we are may be useful.
In the 1990s the banking industry was dominated by two
government banks – Uganda Commercial Bank (UCB) and The Cooperative Bank. Both
through mismanagement and political interference, had most of their loan book
blighted by bad debt as to render them insolvent. They could not meet their day
to day obligations.
"In fact in his “Advancing the Ugandan economy” Suruma reported that things were so bad, at UCB when he joined it as chairman and Managing director, that people seeking to withdraw from their accounts would have to seat and wait for depositors to come into the bank, which money would then be paid out to them...
A bank in similar distress today, would not survive an hour
after it opened its doors for business on any day.
Government tried in both cases to salvage the banks but didn’t
have the capacity to, shutting down Co-Operative bank and selling UCB to
Stanbic Bank.
Unfortunately, this malaise was not restricted to government
banks. Several small private banks fell victim to the same ills of
mismanagement and folded under the weight of the subsequent bad debts.
What was
interesting is that the biggest source of bad loans was insider
lending. The owners would lend themselves huge sums, drawn from depositor funds
and fail or neglect to pay them back.
In effect the banks were providing inexpensive capital for
its owners and directors.
As a result of this, government rewrote the law books to
strengthen Bank of Uganda’s supervisory powers and improve the requirements for
anyone wanting to start, own and run a bank.
Under the new laws the central bank was insulated from
political interference, commercial banks’ shareholding was diluted to prevent
against a single dominant individual owner and the capital requirements for
owning a bank were pushed up substantially from sh1b to the current sh25b.
"Given our experience the logic was simple, we need a strong industry regulator and strong commercial banks that can not only absorb losses when they turn up, but have strong enough capital bases to innovate and better serve the public....
As a result of these changes private sector lending has
jumped to sh16.5trillion at the end of last year from sh731.6b in December 2001.
This statistic alone suggests a strong growth in access to
credit to the private sector. It is inconceivable that Ugandans are not getting
their fair share of this.
That most of this credit is going to trade and services and
not manufacturing and agriculture, is down to structural deficiencies that need
to be addressed.
There is really no way around it. Ugandans will be best
served by an industry that is robust enough to meet their needs, not whether it
is owned by locals or not. Unless of course the argument is for these local
bank owners to have access to cheap money at the expense of the depositors,
which is what led to earlier bank collapses.
That being said neocolonialism in its various guises is real
and cannot be wished away. However, to blame it for our failures, poor
governance in our institutions, is to abrogate our personal responsibilities to
ourselves and country.
