THE reactive intervention by the Reserve Bank of Zimbabwe (RBZ) in Interfin Banking Corporation, which was placed under curatorship for six months, exposed weaknesses in the RBZ’s governance structures emanating from conflict of interest.
While the central bank rightly observed that concentrated shareholding and abuse of corporate structures basically exposed Interfin to a huge sum of insider loans, little was said of the close connection between certain members of the Nssa board and the demise of the bank.
Nssa is a significant shareholder in Interfin, having a 10,3% stake. Nssa was also exposed as a major depositor, with almost US$16 million trapped in the institution.
It is clear from an analysis of the bank’s exposures that some members of the Nssa board and management had severely conflicted positions with respect to their dealings with Nssa.
A glaring instance is the US$3,58 million loan owed to Interfin by Harambe Holdings, a company which — according to investigating authorities — is 80% owned by David Govere’s Noxon Investments. This loan was classified by RBZ examiners as a loss, meaning its recovery is doubtful despite being secured by a first mortgage bond on a property through guarantees by another of Govere’s companies, Medworth Investments.
What is interesting about this loan is that Govere is a member of the Nssa board of directors and chairman of the institution’s investments committee. This is the same committee that presided over recommendations for the placement of the US$16 million in deposits that Nssa eventually lost upon Interfin’s demise.
The main question therefore is not whether Govere as chairman of the investments committee at Nssa appropriately recused himself from the processes that approved the decision to “lend” Interfin a total of US$15 874 086 in policyholder funds. Rather, the question is: Did he disclose to his fellow board members his personal interests and dealings with
While it can be argued that Nssa’s decision to “invest” in Interfin was independent of the credit decisions made by Interfin, if Govere did declare his interests as good corporate governance demands, he should be commended. But then again, it boggles the mind why for this particular loan Interfin engaged Atherstone and Cook — a firm in which Govere’s fellow board member Innocent Chagonda is partner — to act on its behalf.
Curiously, the bank lists its legal advisors as Kantor & Immerman as well as Dube, Manikai & Hwacha. Chagonda’s Atherstone & Cook is not listed, and yet, in this particular instance, it is the one handing the litigation.
Again it is not clear whether Chagonda also appropriately recused himself from investment decisions made by Nssa, given the seriousness of the matter his firm was handling on behalf of the bank’s client. Indeed, Atherstone & Cook is a competent and reputable law firm and would ably represent the bank. But it would be messy if a partner in the firm has to sue a fellow board member for such a huge sum.
Atherstone & Cook is listed as a major depositor in Interfin, having had more than US$2,5 million deposited in the bank when it was placed under curatorship. Fortunately for the bank, the curatorship protects it from litigation; otherwise there would be a situation where Atherstone & Cook would sue Interfin (its client) for US$2,5 million.
There is a web of relationships and counter-relationships which are unhealthy in that they maybe construed to have influenced decisions before or after events.
The independence of directors at both institutions is clearly in question and must be looked at in the context of the RBZ findings. It is clear that inadequate firewalls existed at Interfin and Nssa.
A third but equally curious conflict existed between the bank and its external auditors Pricewaterhouse- Coopers (PwC). The Reserve Bank noted that PwC had overstayed their mandate.
In terms of section 41(4) of the Banking Act (Chapter 24:20) a banking institution is supposed to change its external auditors at least every five years, but both the bank’s board and curiously the auditors themselves failed to detect this very clear breach.