ZABG puts spotlight on RBZ’s integrity

Shakeman Mugari/Conrad Dube

THE Supreme Court ruling on the Zimbabwe Allied Banking Group (ZABG) delivered by Justice Wilson Sandura this week is a direct assault on the integrity of the Reserve Bank of Zimb

abwe (RBZ).


It raises questions of credibility in the way the RBZ handled the banking crisis last year.


The ruling, delivered after six months of consideration, found that the sale and transfer of Trust Bank and Royal Bank’s assets to the ZABG was “null and void, and of no force or effect”.


The judgement said the RBZ acted unlawfully when it approved the sale of the assets to the ZABG.


It also questioned the conduct of the curators who were instrumental in the sale of the banks’ assets to the ZABG.


“Accordingly, subsection (2) of Section 55 of the Banking Act does not authorise a curator to dispose of all the assets of a banking institution. It follows, therefore, that the curator acted unlawfully when he sold the assets of Royal Bank to the ZABG. In the circumstances, the sale and transfer of the assets were null and void, and of no force or effect,” the Supreme Court ruled.


It made the same startling revelations in the Trust Bank judgement.

Justice Sandura said the central bank failed to comply with the provisions of the Troubled Financial Institutions (Resolution) Act, a law that it instigated to justify the takeover of troubled banks.


From government’s point of view, the ruling might be one of many that it may ignore to suit its motives and plan. It is likely to be treated like many other court orders and rulings that the government has disobeyed in the past – especially in land cases.


RBZ governor Gideon Gono is determined to see his project succeed at any cost.


“Even if it means opening (the ZABG) on January 31 midnight, we will do so,” Gono said before the bank was launched. But in the rush to open the bank he forgot – maybe conveniently so – to follow the law.


He infringed the same principles of corporate governance that he has been accusing bankers of breaking, calling it “corporate incest”.


In practice the ruling does much damage to the integrity of both the central bank and the ZABG.


It reveals double standards. It exposes the central bank and the curators’ deliberate sidestepping of tenets of corporate governance, which should, in a normal economy, make the foundation of a central bank.


It portrays Gono as a governor who is determined to disregard the law to achieve his plan. His plan was to set up a bank, and he did.


The ruling sets a crucial precedent in future cases dealing with troubled banks and any other company. It also puts the curator’s integrity into question.


Justice Sandura said in his judgement: “This is an appropriate case in which this court (Supreme Court) should mark its disapproval of the unlawful conduct of the Reserve Bank, (the) ZABG and the curators”.


The ruling was critical of the conduct of the curators who instead of nursing ailing banks back to life decided to bury them alive by selling their assets.


For the ZABG, the ruling removes its very foundation stone as it was set up and operated using assets unlawfully seized from their legitimate owners. It reminds Zimbabwe about property rights which for sometime have been wantonly disregarded.


If the sale of the assets to the ZABG was unlawful, null and void, it means the bank is operating on stolen assets and capital. If Zimbabwe was a country that respects the law, the ZABG should have closed immediately.


The ruling stated clearly that the assets that the ZABG claims to own still belong to Trust and Royal Banks. The employees working for the ZABG belong to the two banks, so do the cars, offices and IT systems.


Financial institutions that continue to deal with the ZABG are putting themselves at risk because they are trading with a technically insolvent bank. According to the Supreme Court ruling, the ZABG is insolvent. It does not have a loan book, offices or assets of its own.


The Treasury Bills, bonds and any instruments that the bank is using as security in dealing with other banks do not belong to it. The court said all that the ZABG calls its assets belong to Trust and Royal.


The judgement also has an implication on the profits that the bank claims to have made in its first results. If it is true that it made $28 billion, according to the court ruling, that money belongs to Trust and Royal being benefits accruing from the use of the two banks’ resources and assets.


The shareholders and depositors of the two banks can also sue for any loss that the banks made because of the forced marriage.


By allowing the ZABG to continue trading, the central bank is telling the market that one can walk into another’s premises to take over the business and start operating as long as the RBZ approves.


Worse still, given the emphasis that the Supreme Court put on the unlawful transfer of assets, the RBZ could be found in contempt of court.


The Zimbabwe Independent has warned in the past that the RBZ is now playing both roles of referee and player in the banking sector. It has a special interest in the ZABG to which it played the midwife.


How can Zimbabwe woo local and foreign investors when the same institutions that are tasked with supervising and monitoring good corporate governance are the first to break the rules?


The wanton seizure of private property is however not peculiar to the financial services sector.


It is the reason why Zimbabwe is begging for food when it has the capacity to feed its own people.


Self-exiled businessman, Mutumwa Mawere, has lost diversified SMM Holdings that he has been at pains to prove that he used personal funds to buy from T&N plc.


The government has used yet another conveniently crafted law to grab the company, just like it amended the Land Acquisition Act to legalise the seizure of white-owned commercial farms.


What is of major concern is that the unlawful sale and transfer of Royal Bank’s assets happened with the full blessing of the RBZ, including the total disregard of the Troubled Financial Institution (Resolution) Act and the Banking Act.


That the central bank is found right in the thick of an illegal disposal of private property is baffling. It’s exactly 195 days since the Independent wrote saying the launch of the ZABG would stir a legal furore.