The Rise and Fall of Afriland: Did BOU Underrate the Bank's Challenges?

Afriland First Bank Uganda will go into Uganda’s history books as the first commercial bank to voluntarily close shop and quit the market.
Afriland First Bank Uganda will go into Uganda’s history books as the first commercial bank to voluntarily close shop and quit the market.

The move by the shareholders of the bank also makes it the shortest journey of a business entity in Uganda’s banking industry, having launched operations in 2020 and lasted less than three years.

The decision that is “an outcome of a strategic business review by the shareholders” was approved by the regulator, the Bank of Uganda, which gives a guarantee to the banking public, of a smooth exit process. 

A number of commercial banks have collapsed or changed ownership over the years, with some being forced into liquidation by the regulator over management issues, and others acquired or merged. 

But Afriland’s is the first of its kind where a bank voluntarily asks the court for ‘voluntary liquidation’, and the Bank of Uganda says this is allowed and provided for under the law.

Zulaika Mirembe-Kasajja, a partner at Kampala Associated Advocates and its head of the Commercial Transactions Department, will oversee the winding up of the business, after being appointed the liquidator.

These include ensuring that all the creditors are paid, and deposits either returned to their owners or transferred to other banks, among others.

In a statement issued to the public on Wednesday, the Central Bank approved the request by the Cameroonian-based bank to apply to the High Court for Voluntary Liquidation.

The Deputy Governor of the Bank of Uganda Michael Atingi-Ego stressed that asking for voluntary liquidation does not mean one is insolvent, and that the shareholders had their reasons to go for liquidation.

The bank, which has been in operation for two years registered an increase in losses from 1.84 in the year ended December 2020 to 2.67 billion in 2021, a situation blamed on the effects of the Covid 19 and, especially on a ban that had just launched operations. 

Records also show that its capitalization was below the Bank of Uganda’s minimum after the company made a loss of about 4.5 billion shillings in two years.

By the end of 2020, Afriland First Bank Uganda’s core capital was estimated at 19 billion shillings, compared to the required 25 billion.

This would mean its strength in regard to the safety of the consumers’ deposits was less than that required by the regulator.

The Ugandan business was a subsidiary of Cameroon-based Afriland First Bank, which owns businesses in 12 other companies. In Cameroon, the bank is ranked the largest financial services company with more than 3.2 billion dollars in assets.

Before getting the license in Uganda, the company had to get a local shareholder as part of the licensing requirements, and the owners reportedly appointed businessman Muyanja Mbabaali, but the BOU told them to get another one.

Consequently, the main shareholder, Cameroonian businessman Paul Kammangne Fokam appointed another local businessman, Cliff Masagazi with an offer of 15 percent shares in return for facilitating the registration process.

Following the successful registration and acquisition of the BOU license misunderstandings developed between the two men hardly a year later, and plans to see Masagazi out ensued.

Other shareholders in Afriland First Bank Uganda Ltd included Afriland First Group SA with 35 percent, Afriland First Bank Guinea with 13 percent, and Mohammadou Dabo, with 11.5 percent. 

Others are John Samuel Noutchgoun with percent, Samuel Kameugne Soup with 4.5 percent, and Fokam himself with 1 percent.

When Masagazi sought a cash compensation for the 15 percent shares so that he quits, he was told that he never owned the shares since he did not pay for them, according to his lawyers. He sought court intervention.

Justice Musa Sekaana concurred with the respondent, Fokam, that Masagazi held the shares on behalf of Fokam.

According to the judgment, Masagazi could also not claim ownership of the shares since he had neither share certificates for evidence nor receipts for paying up for the shares. Masagazi, the petitioner, alleged that his shares were paid for by way of non-cash consideration.  

He told the court that he “was very resourceful and active in ensuring the general set up and licensing of the respondent as a commercial bank but after a short while, the respondent’s managing director started excluding him from involvement in the affairs of the company without any legal justification.” 

“It is unlikely that the respondent company awarded the petitioner 15% shareholding with no documentation whatsoever on record to prove the same. It is also unlikely that the petitioner did all the work to ensure the general set up of the company with no payment except for the undocumented award of paid-up shares,’ said Justice Sekaana, adding that records and evidence show that the consultant hired to execute the work was Plinth Consultancy Services Limited which belonged to Masagazi’s brother.  

“The petitioner’s evidence has left a lot to be desired by this court. The petitioner has never paid up for the 15% shares allotted to him. This issue fails,” he ruled. 

This revealed the possibility that many other shares could be held on behalf of Fokam, especially those registered in the names of other Afriland subsidiaries.

It is not clear why the Bank of Uganda never at this time, took interest in reviewing the shareholding structure of Afriland First Bank Ltd after the court proceedings hinted at a possible violation of the regulations.

The regulations for the banking industry on ownership bar a family or individual from holding 50 percent or more of a company.

According to The Financial Institutions (Ownership and Control) Regulations, 2005, “an individual or body corporate owned or controlled by one individual other than a reputable financial institution or a reputable public company approved by the Central Bank shall not directly or indirectly own or acquire more than 49 % of the shares of a financial institution.”

The petitioner was represented by Kagoro Friday Roberts of Muwema and Co Advocates while the respondent was represented by Idoot Augustine, Raymond Mwebesa, and Martha Mutamba from Kampala Associated Advocates.  

Following the increasing losses, the Bank of Uganda asked the directors to submit a recapitalization plan for the bank.

The auditors said in their statement on the Financial Results for 2021, that the implementation of the capital restoration plan was ongoing and that the bank had received 6.2 billion shillings from existing shareholders applying for new shares.

"The continuation of the bank is dependent on continued financial support from shareholders and other remedial actions by the bank,” said Grant Thornton, the auditors.