Contributor's Economics

The Bank of South Sudan is rapidly facilitating the collapse of Commercial Banks in South Sudan;

By J. Laddu

Stephen Dhieu Dau, former Minister of Petroleum and the current Minister of Finance, now promising to reform economy(Photo: file)
Stephen Dhieu Dau, former Minister of Petroleum and the current Minister of Finance, now promising to reform economy(Photo: file)

October 17, 2016(Nyamilepedia) —- Established by the Bank of South Sudan Act, 2011, the Bank of South Sudan is statutorily mandated to among others regulate the operations of Financial Institutions such as commercial Bank. The Central Bank fulfills this mandate by issuing Prudential Guidelines (Regulations/Subsidiary Legislation) under the authority provided for under the Bank of South Sudan Act. The licensed commercial banks are obligated to operate in accordance with the law and guidelines of their regulator for proper delivery of banking products and services to the customers.

A bank customer saves money in a chosen bank with the understanding that should he/she require the money at any moment as contracted, the bank must honor the demand without hesitation or excuse. In the past months between 2013 to date, customers of majority of the commercial banks in the Country have been frustrated and denied access to withdraw their US$ deposits by these banks for excuses that the Bank of South Sudan do not give them the same. To the customers (including the author), the denial is inexcusable because at the time of opening a bank account, the customer did it with the particular commercial bank where money is saved and the banker-customer contractual relationship exists between the particular bank and the customer. The Customer has no knowledge of how his/her savings and asking for withdrawals relate to the relationship between the Commercial Bank and the Bank of South Sudan (Central Bank).

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Realistically, the relationship between the customers’ savings/deposits and the Bank of South Sudan is that the commercial banks are required by the Bank of South Sudan to remit or repatriate the mobilized customers’ deposits/money to the Bank of South Sudan head-offices at the end of each banking business day for safety. These monies are kept there. At the beginning of each banking business day, a bank makes a written requisition to the concerned officer/department of Bank of South Sudan of amount of money it deems necessary to conduct its operation for the day. By practice the requested monies or subsequent request for the same must be honored, otherwise the commercial bank will not be in position to honor its customers’ instruction for withdrawals or inter-country transfers. The factually true situation in South Sudan is that the failure of the commercial banks to honor their contractual obligation in respect of honoring mandates of their customers on presentation is because the Bank of South Sudan in turn has failed to release upon request, the monies kept with the regulator by the commercial banks.

In many jurisdictions and under the principles of conventional banking, bank’s failure to honor its customer mandate on demand will necessitate the regulator (Central Bank) to take stringent measures including extremes ones such as closure or suspending the operations of the bank or advising voluntary winding up. The Bank of South Sudan has no remedial measure to address the worsening failure to honor customer’s mandate on demand by commercial banks because it is the catalyst of the failure of this core contractual obligation. The Bank of South Sudan is technically dead functionally and an Institution being used to milk the savings of the public through the commercial banks.

Questing for proving facts, top bank officials of five commercial banks revealed that their dollar deposits of about US& 80m each is stuck at the Bank of South Sudan, the reason for their failure to meet their obligation to their customers. Several requests for the release of the monies were made but in vain. Of late in 2016, Commercial Banks with parent companies in foreign Countries in a bid to maintain their NGO customers do direct the NGOs to directly credit their nostrum accounts abroad and the banks do make arrangements to physically transport the monies to South Sudan without wiring through the Bank of south Sudan. This explains why the NGOs and their staff have limited access to dollars but customers who deposited their money between 2013 and early 2016 are rarely considered.

The reason for the Bank of South Sudan inability to honor the requests of commercial banks on presentation is that it lacks the physical dollars and where it took the mobilized deposits kept with the institution is unknown. Although sources from the Bank of South Sudan pointed that some weightier individuals adversely compromised the responsibility of the Central Bank, the identities of these weightier persons are undisclosed but time will eventually do the needful when the pressure cannot be contained anymore. The temporary strategy of transporting hard currency from nostrum accounts from foreign countries to South Sudan is expensive, risky and unsustainable. In the near possible time, the commercial banks will give up on it and at last shall be unable to pay even US$ 50 to a customer.

As of now, officials of commercial banks indicate that South Sudanese Pounds deposits have reduced dramatically for the past six months of 2016, this means that the public is drawing a conclusion that what happened to their dollar deposits is likely to befall their South Sudanese Pounds savings in the nearest time possible. This wise conclusion is supported by real facts such as the October 12th, 2016 unprecedented decision of the Bank of South Sudan asking commercial banks which would be successful bidders of the US$ auction done by the institution, to take physical cash (South Sudanese Pounds) in exchange of the allocated dollars. It is worrying yet there is some truth that the Bank of South Sudan has only electronic money in its system without the physical cash. What is happening to the South Sudanese Pounds deposits? It is following the unknown direction of the US$ deposits. It is predictable that soon or later, commercial banks that may resist taking physical cash to the Bank of South Sudan shall be threatened with penalties and the little deposits they resorted to keep to meet their obligations to their customers shall be used into paying the penalties.

If a person takes his/her person for saving in the bank and cannot get it when he/she needs to meet his/her obligation, there is no reason whatsoever to continue taking money in the bank. And where the commercials banks do not get deposits from the public to make banking transactions besides currently being negatively exposed by non-performing loans and unredeemed treasury bills bought in the past years, their survival are threatened and collapse eminent. In the short run if the public is convinced that something is going wrong with their savings, it won’t be surprising if they massively in a blink of an eye decide to demand for the whole withdrawal of their monies from their respectively banks within intervals of time.

By the Regulator descending into the arena as the chief catalyst of commercial banks’ failure to honor contractual obligations to their customers, failure to timely redeem treasury bills bought using customers’ savings and further asking for commercial banks to carry physical cash for dollar biddings/auctions, the Bank of South Sudan is making savings not safe anymore in commercial banks but facilitating the collapse of commercial banks in South Sudan. To save the commercials banks from the burden of giving excuses to their customers, frustration, curse and anger of the customers, the Bank of South Sudan is under obligation to issue official communication on what happened to the dollar savings/deposits of the customers of commercial banks. Continued failure to honor customer’s mandate on demand is exposing the commercial banks to litigation and reputational risks, equally capable of bringing commercial banks to their collapse or winding up.

The writer can be reached at jladdu2016@gmail.com    

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