AFRASIA Kingdom Bank has run into serious problems and is facing censure by the Reserve Bank after it emerged this week it is reeling from a massive US$21 million under-performing loan and could be placed under recuperative curatorship to protect depositors’ funds and the banking sector, amid indications the institution could have misrepresented material facts about its financial position.
Chris Muronzi/Taurai Mangudhla
The Zimbabwe Independent has established the bank was in trouble from a huge US$21 million under-performing loan which has weakened its financial position, while creating internal strife among management.
Former Kingdom Bank MD Francois Molife resigned from the institution about two months ago under unclear circumstances.
But investigations show when Molife stepped in he had been involved in the structuring of a botched debt-to-equity deal crafted to conceal a bad loan given to a local mobile phone operator that could eat into the bank’s equity.
Mauritius-based AfrAsia Bank Ltd invested US$9,5 million in Kingdom Financial Holdings Ltd for a 35% equity stake in the group which owns the local bank.
Well-placed sources told the Independent this week Kingdom’s fate was now precarious in the wake of a potential massive hole which it is struggling to plug.
“The entire capital of the bank is gone. We don’t know what tricks (Reserve Bank governor Gideon) Gono will pull to save it,” an informed source said. “The central bank is incapacitated in terms of liquidity support and lender-of-last-resort position. It’s a miracle the financial sector is still standing. The fate of Kingdom is not known and it is understood the transaction in question is likely to pull down another local financial institution as there is likely going to be a serious contagion effect.”
Gono was not available for comment.
Things came to a head after Spiritage CEO Zach Wazara wrote a damning letter to the central bank highlighting what he said was a deliberate attempt to conceal non-performing loans on the part of Kingdom.
In the letter to the central bank seen by the Zimbabwe Independent, dated May 2, to the central bank, Wazara says Kingdom entered into a debt-to-equity swap for 80% of Valley Technologies through the bank’s special purpose vehicle — Lalela Trading — in December last year after the mobile network operator failed to settle its obligations to the bank.
Wazara also states Kingdom acquired the shares on the understanding that they would allow a partner, a Chinese company, to take over the company. However, after a meeting with the Chinese investors, Kingdom reportedly went ahead with a decision to foreclose on the loan. This culminated in Kingdom’s attempt to sell the company’s assets through an auction last week. The assets had been pledged as security for the loan.
Wazara further sensationally claims the bank entered the debt-to-equity deal with his company in order to hoodwink the Reserve Bank by covering up the true state of its financial affairs during the December reporting period.
“The bank advised (us) they were concerned that Reserve Bank would require them to provide for the loan, and with a capitalisation of US$23 million, they (Kingdom Bank) would be required to hand over their licence,” reads Wazara’s letter. “Now that they crossed December 31 milestone, the bank is seeking to reverse the transaction in a very unceremonious manner.”
Other sources said the Reserve Bank had dispatched a team of forensic investigators who have been camped at Kingdom Bank for close to a month.
Initial findings, according to one source at the bank, have unearthed the need for recapitalisation after its entire investment was wiped out by non-performing loans which were not provide for in December as required by statutory provisions.
The latest developments are said to have riled founder Nigel Chanakira’s partners in Kingdom — Afrasia — who are now holding on to a shell, barely a year after rescuing the bank from the brink of collapse. It also comes just a couple of months after Chanakira had survived a brutal showdown with Meikles Africa Ltd chairman John Moxon, after a fall-out over their widely publicised failed merger.
Wazara also says Kingdom had abused his company’s facility with an international financier to pay interest from the funds against conditions agreed to by the parties and without the knowledge of Valley Technologies, while using the money for non-permitted transactions without the knowledge and consent of his company and further utilising the funds to pay off third party facilities owing to it without permission.
He also says the bank had delayed the disbursement of draw down requests for unexplained reasons, despite asking for a US$2 million advance from the financier. He adds Kingdom had drawn down on the company’s facility without the knowledge or consent of his company.
Wazara further indicates the bank overcharged Valley Technologies by almost US$3,2 million in interest on its loans.
“As of March 15 2012, the total interest due was US$2 230 360, but by November 2012 the bank was claiming US$5,4 million in interest and bank charges, a matter that remains unresolved up until now. Valley Technologies contends that its interest burden should be US$3,4 million less than what Kingdom has charged. This information is documented in an annex as well as the E&Y (Ernest & Young) audit report,” Wazara’s letter reads.
“The bank is calling in loans that are not yet due. Valley had a grace period on interest, payable on March 31 2013, and the rest of the amounts are payable quarterly until December 31 2015 in terms of agreement.”
In response to questions sent to Chanakira, Kingdom Bank head of public relations & corporate communications, Sekai Chitemerere said: “Ordinarily, the group does not discuss with the press each and every disagreement or dispute that we encounter with our clients and associates, and the one in question is not an exception. In addition to that, Kingdom Bank Ltd does not comment on individual clients owing to the client-confidentiality clauses that we strictly enforce.”
However, a source said: “The two case scenarios for Afrasia would be; bringing in new money and increasing its shareholding or allowing the bank to fold. I don’t think they want to see it folding without getting a return on their investment.”
Zimbabwe has in recent years experienced a series of bank collapses due to economic problems, especially a chronic liquidity crunch, mismanagement and corruption.