Besieged banker

By Joan Akello

UDBL’s Sejjaaka under siege as Kampala’s lone development bank faces financial squeeze

The Uganda Development Bank Ltd has been ailing for decades. But even by its own poor record, something that happened after 2009 marked a new low. The bank’s profit for the year dropped from Shs11 billion in 2008 to Shs 1.4 billion in 2009 and Shs719, 000 in 2010. From that point on, it was clear the bank needed to be restructured and the man chosen to lead that project, as chairman of the board from May 2012, is Prof. Samuel Sejjaaka.

With a job as deputy principal of the Makerere University Business School, a directorship on the board of Stanbic Bank, one of the biggest commercial banks in Uganda, and chairman of the only development bank in Uganda, Samuel Sejjaaka is the epitome of the so-called `Museveni money’; a class of nouveau middle class gentry that thrives on flamboyancy and thrift.

Although just a few years back Sejjaaka lived in a small government flat in the Wandegeya city suburb, today he boasts an address in the upmarket Kololo area where he lives in a Shs 1 billion mansion with three black Benz limousines in the parking lot. As most Kampalans scurry to work in the morning, Sejjaaka is often to be found practicing his putting at the members-only 18-hole Uganda Golf Club.

Sejjaaka, who boasts a wealth of classroom accounting knowledge, had until his appointment as chairman of the UDBl board been involved mainly in consultancy and smalltime family business management. That is partly why his critics at the bank now claim he is a light-weight manager hoping to achieve big things with feather weight hirelings. Sejjaaka’s strategy will not resuscitate the patient, they say. Unfortunately, so far, they could be right.

Sejjaaka is not a managing director at UDBL and his first order of business should have been finding a substantive CEO. Instead he appears determined to keep the Ag. CEO, Patricia Adongo Ojangole. It is a controversial decision because when the CEO’s job was advertised, Ojangole did not make the shortlist. That list included Daniel Kaggwa and Grace Isabirye who led the five candidates interviewed with 85% and 73.5% overall scores respectively. They were supposed to advance to psychometric assessment stage but the process was aborted over unclear reasons. Apart from the CEO, many top positions at the bank remain unfilled.

Meanwhile, UDBL has been in the news lately over alleged unfair dismissal of former staff, dishing out of unsecured loans to Sejjaaka’s cronies, and disregard to due process in procurement. A report by the government’s finance ombudsman, the Auditor General, found that by end of August 2012, up to 25% of the bank’s loan portfolio was non-performing. Sejjaaka was appointed in May 2012 and most of the bad debt was inked before his tenure. That detail might prove irrelevant because although that part of the story has had its drama, the plot is likely to thicken when anyone digging for pay dirt starts scouring the financials under Sejjaaka’s tenure.

Finance prudence experts that spoke to The Independent say even if the leaked reports on alleged unprofessional conduct do not succeed in pulling the Sejjaaka team down, his tenure at the bank will remain tenuous unless he can help it find new money.

Liquidity squeeze

Unlike commercial banks which raise capital from customer deposits, UDBL as the only development finance institution in the country, was designed to mobilise resources from trust funds from the government and loans from multinational finance institutions at low cost for onward long-term lending to viable commercial ventures mainly for acquisition of fixed assets. In the 1980s the bank got loans from the African Development Bank, International Development Agency, the European Investment Bank, and the Organisation of Petroleum Exporting Countries.

In 2009 the bank was recaptalised by its sole shareholder, the government, with a US$7.5 million loan from the Arab Bank of Economic Development (BADEA) and the Islamic Development Bank.  Over its checkered 40-year life, however, UDBL has not had much success in raising its own money. Although Sejjaaka and his team have promised to change that before their three-year term runs out in 2015, the bad press it is attracting and untested pedigree of the Sejjaaka team is unlikely to change that.

At a time when the bank badly needs injection of new money, Sejjaaka is drawing bad press with his decision making and alienating allies in government and the international finance community.

Sejjaaka’s first task on the job was to clean the deck. He has gradually weeded out the old management team, but is embroiled in an ugly court fight after he refused to pay their terminal benefits. The sacked staffs want Shs 580 million in terminal benefits which the bank cannot afford to pay even if it wanted to. Significantly, however, for his operation is the slow rate at which Sejjaaka’s new team is taking shaping. Although the Sejjaaka led board approved the CEO, Patricia Adongo Ojangole in December, the minister of Finance still has to approve her. Without a confirmed CEO, the bank is reportedly finding difficulty in dealing with some of its funders.

As a result of a liquidity squeeze at the bank, Sejjaaka has resorted to liquidation of some of the bank’s fixed assets including Shs 2.6 billion from United Bank for Africa and Shs 2.5 billion from Housing Finance Bank. Meanwhile, the bank’s liquidity ratio which measures a business’s ability to meet its short term obligations as they fall due has been getting worse. While it was 1.2 in August 2012; meaning that the bank had cash to pay 1.2 times its short-term debt, a January 8 Liquidity Report showed that the bank can no longer cover its debts. Despite liquidation of some assets, ratio was 0.3.

Bad loans

Although Sejjaaka shed-off the old team for purportedly approving bad debts, his lending approvals are also being queried. One particular case has come under scrutiny by the police and the Attorney General and involves Sejjaaka, the Ag. CEO Ojangole, and a top business staring insolvency in the eye.

The loan facility applicant, a cereal processing and exporting entity called Savannah Commodities Ltd, looks to be up to its neck in bad debt.

As of June 2012, Savannah Commodities Ltd had loans in Bank of Uganda (Agricultural loan) with an outstanding balance of Shs 2.1 billion originally from Orient, refinanced by Standard Chartered Bank. At Standard Chartered the company has three other loan facilities; a Shs 1.3 billion facility with an outstanding balance of Shs 833 million to refinance long term Apex loan to procure silos and machinery, a Shs 266 million with an outstanding balance of Sh. 247 million for branch coffee procurement, and a Shs 4.6 billion facility with an outstanding balance of Sh. 247 million for procuring a grain processing machine. In an odd twist, Savannah is attempting to use the already encumbered grain processing machine as collateral for the UDBL loan.

A whistle blower by letter dated Jan. 31 to the IGG warns that the Shs 28 billion loan to Savannah was questionable as it attempts to secure loans to another financial institutions whose value were below the total sum of the loan being advanced to the company.  The borrower secured the loan with Plot 8, Nyondo Close, Kampala West Mengo district with a forced sale value of Sh. 2.5 billion. It is alleged that additional security offered was without a certificate of title and that one of the bank’s finance officers  told the board  it was inadequate. The IGG stopped the issuance of the loan pending investigations.

The Commissioner in charge of the Anti-corruption Department, Charles Babweteera, told The Independent that police had intervened and attempted to block the loan. A police source said the UDBL board is facing a liquidity squeeze and was anxious to get the loan appraisal fee of Shs. 600 million. Instead Savannah paid only Shs 300 million to the bank on Jan. 9.

The bank’s lending policy states that each project loan must be backed by collateral such as premises, urban real estate, undeveloped land   whose forced sale value shall be equivalent to not less than 1.2 times the value of the loan to be disbursed. For the US$11.5 million loan, Savannah offered US$1.4 million in equity only. The borrower was expected to secure the loan with an asset worth Shs33.6 billion but it gave out Shs 2.5 billion instead.

In total, as of June 30 2012, Savannah Commodities had outstanding facilities, including private loans amounting to Shs 4.5 billion and was applying for a loan from UDBL six times the outstanding loans, without evidence of their cash flows in the loan offer letter. Cash flow statements are standard in credit appraisal to stress test a borrower’s ability to pay. It is unclear why they did not apply to Savannah.

Despite the issues over Savannah’s ability to pay, on Jan. 9 the UDBL Acting CEO Patricia Ojangole and bank secretary Juliet NagawaLuggya informed them that a UDBL board meeting held on October 25, 2012 had approved the loan.

In an interview with The Independent, Sejjaaka defended the decision. He said Savannah is to use the money to put up a green vegetable and cereal processing factory for export in the East African market.

Sejjaaka says the board approved the loan basing on the `Know Your Customer’ model.

He said he said he “knows who the borrowers are and what they can do and what they cannot do.”

Details show that the loan was split into two; US$ 3,485,482 (Approx. Shs 9 billion) as a term loan over eight years and US$ 6.5 million (Approx. Shs 17 billion) as working capital over eighteen months.

The working capital loan available on a revolving basis  will  buy   a secured working capital  loan facility  with a sum not exceeding US$1.5 million from Standard Chartered  , a sum not exceeding  US$3.5 million  to buy out the  outstanding  balance  on the structured  commodity  finance facility  and a sum not exceeding  Shs 1billion( US$375K) from standard Chartered. The balance shall be used to procure coffee and pulse (maize, beans, sorghum, wheat barley, millet and other legumes).

The bank’s lending policy 2010 states that the bank’s exposure to any one industry should not exceed 15% of the bank’s core capital plus loans disbursed to the bank with a maturity of over 10 years.

As of the 2011 Annual report, the bank had total assets worth 110 billion, of which 78.6 billion was core capital.  The Savannah Commodities Ltd loan breaches this rule. But Stephen Isabalija, who heads the board’s Credit and Risk Management Committee, dismissed the bank’s lending policy as “old and anti-development”.

Stanbic clique

But the Savannah deal has led to speculation the UDBL is now in the claws of a “Stanbic mafia”.  Sejjaaka is a director on the Stanbic Board where the Savannah proprietor, Hannington Karuhanga, is the chairman of the board. UDBL CEO Ojangole is a former Stanbic Deputy internal auditor who left in 2011 and Harriet Omoding, another UDBL board member is a former Stanbic employee. Finance Minister Maria Kiwanuka who appointed the board, was also on the UDBL board and on the Stanbic board with Sejjaaka before resigning in June 2011.

Meanwhile, Sejjaaka is an associate professor of Accounting and Finance and deputy principal at Makerere University Business School (MUBS) where Isabalija is also a lecturer in the faculty of management.

Although there is no evidence of its materiality at this point, the touchy Savannah loan applicant, Hannington Karuhanga, is reportedly connected in high places. He is said to be a cousin to First Lady Janet Museveni, a brother to Hope Nyakiru, who is Under Secretary in State House and wife to Brig. Henry Tumukunde, and Peace Byaruhanga, wife to Presidential adviser Moses Byaruhanga.

Pressure mounts

Allegations of nest feathering have also emerged over a UDBL decision of December 19, 2012 to hike the directors’ rates and allowances. Sejjaaka’s retainer as chairman was raised from Shs 650,000 to Shs 18 million and sitting allowance from Shs 750,000 to Shs 910,000 as stipulated in his appointment letter. The other directors’ retainers were also raised Shs 500,000 to Shs 15 million and sitting allowance from Shs 600,000 to Shs 650,000.

Although on Feb. 7, the CEO Ojangole told The Independent that the new rates had not taken effected because the minister had not approved them, other sources said the new rates were being paid.

The Independent has seen a copy of an email in which the CEO directs one Joshua Makuyi to effect the ‘amended’ rates for directors.

Sejjaaka also denies his remuneration was increased.

“I am still complaining to the minister that I am underpaid,” he told The Independent. Instead, he says, the five directors were each given Shs 3 million as a Christmas bonus.

The new rates issue became contentious after Florence Kabenge, then-acting Company Secretary and head Legal Department advised that it was inconsistent with Article 60 of the bank’s Memorandum of Association 2000 that turned the bank to Limited Liability Company.

Pressure is mounting on Sejjaaka’s team as it faces a lawsuit over relocating the bank without the approval of the solicitor general, amidst irregularities in the procurement process for Rwenzori Towers when, it is alleged, the bank had a running contract with Ruth Towers. SabitiConeria, Executive Director of Public Procurement and Disposal of Assets (PPDA) went to the bank on Jan. 28 but found it closed because it was sub renting premises at Rwenzori Towers. Work on the floor it was to occupy was still going on. The Inspector General of Government (IGG) also sent the bank a notice of investigations on Jan. 3.

Sejjaaka is a cocky streetwise customer who often boasts of connection in high places as his shield against detractors. He will need a lot of protection if the bank’s fortunes do not turn around substantially.