Fraud rocks Premier Bank

Shakeman Mugari

THE Reserve Bank of Zimbabwe (RBZ) has issued Premier Finance Group (PFG) with a corrective order following revelations that its senior executives could

have siphoned billions from the bank and benefited in their individual capacities when the company acquired a majority stake in CFX Financial Services earlier this year.

A preliminary RBZ report to be released within the next three weeks will reveal how PFG former chief executive, Exodus Makumbe and chief operating officer, Cassius Gambinga, could have helped themselves to the company’s commissions and engaged in non-permissible activities that threatened the welfare of the whole group.

PFG is the parent company of Premier Bank.

The report will also give details of events that led to the unceremonious exit of Makumbe last month.

Although the official statement from Premier Bank’s holding company, Premier Finance Group, was that Makumbe had resigned to pursue the bank’s regional expansion programme, businessdigest can reveal that he was actually pushed out by the board over allegations of fraud and serious corporate governance issues.

The central bank also raised serious concerns about his continued leadership after irregularities were uncovered by the investigating team and KPMG auditors. KPMG was hired by the RBZ to help with forensic audits at the bank.

Makumbe tendered his resignation eight days after he was put on forced leave by the board.

Sources close to the issue said Makumbe was sent on forced leave together with Gambinga on August 21.

Makumbe tendered his resignation to the board on August 29. Gambinga is still on forced leave but his fate will be clear when the final RBZ report is officially released.

businessdigest understands that Premier’s problems started in July when the bank experienced liquidity problems. Although the liquidity crunch was a market-wide problem Premier was the least prepared because of its size.

Their problems were worsened by the fact that the bank had loaned heavily to cotton merchants who at that time were failing to service their debts because of the short market. Premier was short $70 billion and battling to settle its depositors.

A visit by the RBZ’s surveillance department on July 2 unearthed the full scope of the crisis at the bank.

The investigating team found that while the market deficit had triggered Premier’s problems, the bank had other inherent irregularities that had combined to worsen the situation.

The probe team discovered that PFG had heavily borrowed from Premier Bank.

It discovered that the hole in the bank was actually less than what the holding company, PFG, had borrowed from the bank.

The central bank has since 2004 discouraged inter-company borrowings in the financial sector.

There were also insider loans which had been given to executives in their individual capacities and conduit companies related to them.

Inter-company borrowing and insider loans led to the collapse of Royal Bank and Trust Bank three years ago.

The probe also discovered that Premier had understated statutory reserve requirements and that its financial position was not stable at that time. The report, the sources said, will also reveal how senior executives were involved in front-running when PFG was in the market buying CFX shares.

It is alleged that senior executives got money from the holding company, bought CFX shares at low prices, held on to them before selling them back to the company at huge margins. PFG currently owns 26% of CFX.

businessdigest understands that about 8% of that shareholding was bought by Premier from its executives who had acquired the shares with the inside information that sometime later the company would need the CFX shares.

The executives also bought Econet and Old Mutual shares with money borrowed from the group. They also bought houses and other properties.

“These issues are so serious that some people will be arrested,” said a source close to the probe.

Makumbe referred all questions to the PFG’s current management. Contacted for comment Makumbe said: “You may recall that sometime last month the chairman of Premier Finance Group Ltd issued a notice in which the market was informed of my resignation from the group to pursue regional and international opportunities that benefit the business. Subsequent to my departure, the managing director of Premier Bank was appointed acting chief executive officer, and his elevation, albeit in an acting capacity, was widely covered by the media.”

“I therefore, find myself in a very difficult position to comment on issues pertaining to PFG or any of its subsidiaries
given that we have a qualified and competent team running the group, which should be in a position to give you, on record, any information that you may require without trespassing beyond the ethics of the banking profession.

“I kindly refer you to seek official comment from either management at PFG or the board chairman in the interest of fairness, objectivity and balance, bearing in mind that banking, by its very nature, is sensitive. I hope that you will understand my position.”

The report which was compiled with the help of KPMG Auditing firm will also touch on the competence of the officers that are in charge of Premier bank at the moment. RBZ governor, Gideon Gono, could not be reached for comment yesterday but he made some reference to the irregularities in his monetary policy presentation on Monday.

“As stated earlier, we note with concern the re-emergence and increase in incestuous relationship between certain banking institutions, their holding companies and other related parties that are reminiscent of what we saw in the pre-2003 era,” Gono said.

He said some “unscrupulous executives continue to use convoluted group structures as conduits for abuse of depositors’ funds and engagement in non-permissible activities such as the purchase of stocks on the equity market”.