RBZ breached rules in Trust deal

Godfrey Marawanyika

IN what could pass for a clear disregard for good corporate governance regulations, the Reserve Bank of Zimbabwe this year doled out $268 billion to Trust Bank without following elementar

y procedures, including a written agreement.


Sources at the bank say the RBZ gave money to Trust Bank without a proper agreement to bind the two parties. They say there was no written document indicating that Trust was given money by the central bank.


Other sources said it was a “loose gentlemen’s agreement” that was open-ended. The Reserve Bank poured about $268 billion into the troubled Trust Bank. It has also emerged that Trust Bank did not sign any loan advancement documents with the central bank.


Trust Bank was subsequently placed under curatorship despite the central bank’s argument that the liquidity support, issued in haste earlier this year, would save the bank.


Of the total amount, $208 billion was for liquidity support and the balance was to be used to shore up statutory reserves. Trust’s loan soon ballooned to more than $1,4 billion, raising fears that the RBZ might lose its money if the bank was liquidated.


Financial sector sources this week said the central bank’s negligence could backfire as there was no evidence of how much had been given to Trust.

“What the Reserve Bank did is unprocedural because there is no proof that they loaned them (Trust) that money,” the sources said.


“By so doing, it can also raise the arguments of the in duplum rule. In the end it must be said that the Reserve Bank has been badly exposed.”

The in duplum rule states that interest paid should not exceed the initial capital loaned.


“At the end of the day this can result in a long legal wrangle if Trust Bank chooses to pursue the matter. This can result in the Reserve Bank being badly exposed because there is no formal document to prove their claims on how much they are owed.”


At the time of its closure, Trust allegedly owed the central bank $1,4 trillion because of interest accrued. It had paid the central bank $85 billion.

But the RBZ loan to Trust was not documented just like most internal loans at several banks. The loans did not also have repayment periods.


Since the beginning of this year, four financial institutions have been placed under curatorship.


The RBZ placed Trust under a curator to protect investors’ funds because of its precarious financial position.


Both the central bank and the curator of Trust, Peter Bailey, had not yet replied to questions sent to their offices at the time of going to press this week.


At the time of its closure, Trust was owed $300 billion and the Reserve Bank owed the institution US$27 million from foreign currency dealings.

The bank was also sitting on a bad loan book of $150 billion in money it had advanced to parastatals.


Among those loaned are the Grain Marketing Board, the Cold Storage Company and the National Railways of Zimbabwe.

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