They accuse NBC management of gross misconduct and reserve the stingiest criticism for the top three major shareholders, Mbabazi, Nzei and Rugunda.

When investors from the United Arab Emirates wired just over $5 million from their account in Abu Dhabi Islamic Bank to prominent businessman Amos Nzei's accounts in the same bank and in Uganda, between May 2008 and March 2011, they thought their venture to acquire National Bank of Commerce (NBC) in Kampala was on track.

More than eight months after the last installment hit Nzei's account, the investors, M/S International Investments House, are crying foul; Nzei, one of NBCís majority shareholders, is yet to meet his part of the bargain.

The investors have now gone to the High Court, suing Nzei, together with Prime Minister Amama Mbabazi and ICT Minister Ruhakana, who are the other two majority shareholders in the bank. One of the documents The Observer has seen points to International Investment House depositing $435,000 on Mbabazi's account in Tropical bank on May 15, 2008 as part-payment for his shares in NBC. Around the same time, Nzei also received his share, which was also deposited in Tropical bank.

Now International Investment House want to recover their money. On February 27, 2012, they instructed their lawyers, Shonubi, Musoke and Company Advocates to "institute as may be instructed by us civil proceedings against Amos Nzei, Ruhakana Rugunda, the National Bank of Commerce and or all the sellers in respect of our claims arising out of the transaction pursuant to which we acquired 76% of the shares in the issued and paid-up capital of National Bank of Commerce U Ltd."

Last Thursday, March 15, International Investment House, through their subsidiary Emirates Africa Link for Strategic Alliance, made good on their threat as they filed a case in the High Court. They say they first bought 48% of the shares in NBC for $6 million. They then put in more capital of $3m and further payments made to third parties on behalf of the bank amounting to $920,000 (as per the agreement between buyers and sellers, to be recognised as capital of the bank). This brought the total to $9.97 million. They want all this money back.

This is a story of double-crossing - a continuation of another controversy with Mbabazi in the thick of things - and a struggle to take over the reins of a bank, whose performance and customer service is so bad, a mystery shopper survey sanctioned by some of the shareholders once found "a chicken walking around" the banking hall.

Some of the bank's documents The Observer has seen show that a sum of Shs 7bn that went out as loans, with some of the beneficiaries as shareholders, was recently declared by a board meeting as nonperforming assets to be written off. One of the beneficiaries was Nzei through Akright Projects Ltd, which received Shs 1.5bn in 2010 plus Shs 55m extended to his Kabale-based Hot Loaf Bakery.

Matthew Rukikaire, the bank's board chairman, received Shs 127m. Other beneficiaries were: Mulenga and Company Ltd (Shs 997m), Rev Ezra Bikangiso (Shs 280m), Kabale Institute of Health Sciences (Shs 150m) and Bunyonyi Overland Resort Limited (Shs 104m). International Investment House, in a series of letters to Bank of Uganda (BoU), accuse the current NBC management of gross misconduct and reserve the stingiest criticism for the top three major shareholders, Mbabazi, Nzei and Rugunda.

In a December 6, 2011 letter to BoU, International Investment House writes: "All effort to clean its [NBC's] portfolio, restructure it and steer it to the right direction to make it qualify to be a rated bank and make it investable and attract more investors to come on board, was hindered and blocked by the MD [Mohammed Wahra], the board and related parties to them...Now it is clearly evidential that the intentions were bad from the beginning and well planned to keep the controlling shares [51%] in the seller's group hands and hijack the project after value creation and strip the capital, which we injected, to their own benefits."

Theinvestors also take issue with Mohammed Wahra, NBCís managing director. Wahra is accused of all sorts of things, including paying himself a hefty salary, interfering with board decisions and mistreating staff, among others. What is not clear from all the documents The Observer has seen is whether he is directly involved in facilitating Nzei, Mbabazi and Rugunda to have a firm grip on the bank.

A letter from International Investment House to Bank of Uganda, dated October 20, 2011, notes: "We are simply suffering from an MD who is making big confusions and some board members who are non-bankers trying to operate a bank, and some others who are more occupied in consuming this public company's [NBC] resources and capital to their benefit... Unfortunately, we were unable to move the issues forward with the current management and board that is steered and controlled by some of the sellers."

Mutebile sucked in

BoU governor Emmanuel Tumusiime-Mutebile has also been sucked into this controversy. BoU regulations warrant that should a bank continue to fail stress tests and show no signs of turning around the situation, it should face penalties or be declared bankrupt. NBC has performed poorly on so many fronts since 2008; it boggles the mind why it remains in existence. And it's the bank's continued existence that brings into question Mutebile's decision-making process to rein in such errant players.

For example, as at December 2011, according to official documents from BoU, NBC made a cumulative loss of Shs 4.1bn - a 389% jump compared to the previous year's loss of Shs 847m. The bank's cost to income ratio (the money it spends to make money) was 220% as at December 2011, far higher than the industry average of about 65%. This high ratio is brought about by the bank's worsening losses. NBC's loan portfolio - an area where banks make money - declined by 18% to Shs 6.9bn in the year ending December 2011. Customer deposits dropped by 16% (to Shs 9.7bn) during the same period.

It is possible BoU is running out of patience. Jane Bagyenda, the Central Bank's executive director in charge of supervision, wrote to Rukikaire, chairman of NBC, on February 29, 2012, raising her concerns about the bank.

"You realise that ever since the new capital requirements came into force on March 1, 2011, the National Bank of Commerce Uganda Limited has not complied with them. Whereas the capital injection in August 2011 improved the bank's capital position, it was not sufficient to bring the bank to compliance, as part of the capital was eroded by losses. You will also note that BoU has been supportive throughout this period when the bank has had shareholding challenges," she wrote.

"We wish, therefore, to reiterate BoU's position that we shall penalise NBC beginning March 1, 2012...The penalties shall run per day in default until the bank complies with the minimum capital requirements of Shs 10bn," Bagyenda added.

A source close to the issue told us BoU has not taken such action yet.

Early signs

To understand just how International Investment House found themselves in this mess, it is useful to look back at the history of NBC. From the start, there were signs that the bank's business model would at some point run into trouble. It started as Kigezi Bank of Commerce sometime around 1991 to provide banking services and cheaper loans to the people of the south-western sub-region of Kigezi. There were rallying calls to all the people in this area to buy shares in the bank, a model almost similar to that of Centenary bank although the key difference is that while the former was spearheaded by ambitious personalities, the latter was by the Catholic Church.

It is, therefore, not surprising that as personalities became ambitious - and perhaps greedy - the issue of shareholding was always bound to pop up at some point. No wonder the 320 minority shareholders, including George Kanyeihamba, Jim Muhwezi and Ezra Suruma, have ganged up against the bank's management and want all those they entrusted with their money brought to book. Some other minority shareholders want the bank liquidated since, as they argue, it benefits a few.

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+1 #21 Obalopiny 2012-03-20 11:06
In Uganda a petty thief can face mob justice in the streets but the really big fishes in public office who are stealing vast amounts from each and every Ugandan  amazingly seems to get away with it!
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-1 #22 nusnaki 2012-03-20 13:27
I keep telling you these guys are thieves!!!the so called liberators who took over Uganda and have looted and plundered the poor country shamelessly!!Th ey dont care about having big buildings without roads! Kale bano babba!!Basajjab alaba, Mutebire, Karuhanga, Nasasira, Muhweezi, M7, Kuteesa, Protea bank, Rukakana, Nzei, M7 and family, .....
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0 #23 a70667 2012-03-20 14:42
If you look at NBC critically, it shows the hallmarks of a money laundering conduit! Any serious investor would opt for another partner.
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0 #24 wodgot 2012-03-20 17:27
On the behalf of the entire people of Uganda, I would like thank the victims of this scandal for letting us know we couldn't have known as citizens of Uganda.

If it's true that Tummusime Mutibile is also a shareholder of NCB, Parliament must then react very quickly and save Uganda by impeaching him as the Governor of the Central Bank. He's clearly demonstrated conflict of interest as the Governor of BOU by peddling the operations of his own private Bank even when it wasn't fit to be a bank.

I cant't rule out that he's abusing his office by laundering Gov't money through his private Bank.
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0 #25 Betty Long Cap 2012-03-20 19:11
Quoting Obalopiny:
...the really big fishes in public office who are stealing vast amounts ... seem to get away with it!

Today my local East African affairs adviser informs me that the first thing a newly elected African president does is open a Swiss bank account. 80% of foreign aid is funneled into private accounts of the president and his cabinet.

Conclusion: Those six Russian fighter jets were not only impressive to African dignitaries but also an avenue for direct deposit.

Therefore judge nothing before the time, until the Lord come, who both will bring to light the hidden things of darkness, and will make manifest the counsels of the hearts: and then shall every man have praise of God. 1 Corinthians 4:5
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