A Ugandan government injection of 200 billion Ugandan shillings (USh200 billion-US$57 million) into Crane Bank may be too little to restore the bank's ability to provide letters of credit (L/Cs) to its clients.

In July, the Bank of Uganda (BoU) ordered the privately owned bank to cease writing L/C business and suspend other banking services due to the bank's apparently high level of non-performing loans.

Insufficient injection

The cash injection of USh200 billion is less than the USh500 billion analysts say is needed to secure the Crane Bank's liquidity position, but even if an extra USh300 billion were pumped into the bank, this may not be enough to restore confidence in the bank and recover lost customers.

When BoU ordered Crane Bank to stop issuing L/Cs - as well as bid bonds, performance guarantees, new loans, overdrafts and credit cards - clients were forced to obtain services from other financial institutions.

Run on the bank

As a result, clients also moved deposits to other banks while news spread via social media and word of mouth that all was not well at Crane Bank.

This caused a run on the bank in mid-October as many other depositors withdrew their money, thus worsening the bank's liquidity position and causing heavy losses.

Analysts now fear that customers are unlikely to have sufficient confidence to return to Crane Bank even if it is properly capitalised.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.