A STORM has engulfed one of Zimbabwe’s oldest financial institutions, ZB Financial Holdings (ZBFH), over a series of issues which include forcing out of independent board members, a controversial payment of dividend, unlawful appointment of the group’s chief operating officer, stalling of a merger process and a raft of corporate governance failures.
This situation has forced Reserve Bank of Zimbabwe governor John Mangudya to quickly intervene to stop a potential crisis at ZBFH which could pose a grave threat to the stability and smooth operation of the financial institution, as well as further undermine confidence in the banking sector.
A number of banks have collapsed due to related problems in the past decade.
Documents obtained by the Zimbabwe Independent this week show that Mangudya has been seized with the matter to prevent a crisis. He has also roped in Finance minister Patrick Chinamasa, Public Service minister Prisca Mupfumira and the Office of the President and Cabinet in a bid to contain the problem.
The central bank chief has also engaged ZBFH majority shareholders over the issue.
The group’s major shareholders include Transnational Holdings Limited (THL), the National Social Security Authority (Nssa), Mashonaland Holdings, Zimre Holdings, Old Mutual Zimbabwe and the Guramatunhu Family Trust.
Contacted for comment yesterday, Mangudya could not talk as he said he was in a meeting.
However, in a letter dated March 7 2017 to ZBFH chief executive Ron Mtandagayi, Mangudya raised a chain of issues that he said need to be urgently addressed, with some of them having a March 31 deadline.
“I write with reference to the meeting held between the Reserve Bank of Zimbabwe, the board of ZB Financial Holdings and the principal shareholder of Transnational Holdings Limited on 3 March 2017,” Mangudya said in the letter.
“At the said meeting, we highlighted that it had come to our attention that there are uncomfortable developments at ZB Financial Holdings which are a threat to the stability and smooth operation of the entity. In general, there are serious corporate governance deficiencies which require urgent attention and in particular the following developments have taken place at ZB Financial Holdings Limited since Transnational Holdings Limited came on board as a 26% equity holder.”
Mangudya said the forcing out of four independent non-executive directors in October 2016 had compromised the ZBFH board oversight, resulting in a supervision vacuum at the financial services group.
He added that instead of working on urgently constituting a board by replacing the independent non-executive directors who resigned, THL had been flexing its muscle at the group.
With a 26% stake, THL became the second largest shareholder in the group after Nssa’s 37,79% following seasoned banker Nicholas Vingirai’s investment vehicle’s victory in a long-running legal battle over shareholding.
Subsequent to this, Vingirai and his group seconded people to the ZBFH board. He also deployed his trusted lieutenant Mike Manyika as group chief operating officer.
Peter Nyoni is currently acting chairperson of the group. Another board member, Tunde Akareli, is said to have been appointed early last year before THL moved in.
“To date, only two replacements have been made and through a flawed process that was not in accordance with best practice as the institution does not have a nominations committee,” Mangudya said.
On dividend controversy, the central bank boss said a dividend was declared on May 26 2015 before THL assumed shareholding from government and the board agreed to a claim by THL shareholders to be paid a dividend for the same financial year before it took control of the shareholding.
The decision to pay the dividend without consensus, Mangudya said, has divided the board and shareholders. He said the dividend payment was against ZBFH’s articles of association, adding that the payment should be reversed.
“The decision to pay the dividend of $658 699 to THL must be reserved and any sums paid to THL be recovered in full by 31 March 2017,” Mangudya said.
He also ordered the bank to revoke the appointment of Manyika, saying he was employed without the approval of the Reserve Bank as required by law. The appointment, he added, was also in disregard of the Reserve Bank’s advice.
Mangudya said the recruitment of the group chief operating officer was not done by ZBFH, but by THL directors who, representing the latter’s interests, signed the appointment letter that is not on an official ZBFH letterhead.
“The appointment should be revoked with immediate effect as it was done in breach of the law and due process was not followed. For the legal appointment, a penalty of US$300 for every day the group chief operating officer was employed is imposed against ZB. The penalty amounting to $36 000 must be paid within seven (7) days,” Mangudya said in the letter.
“The recruitment of the group chief operating officer and the approval of payment of the dividend to THL was made by ad-hoc committees hastily set up for the purposes.
“The involvement of THL-appointed board members is not only improper, but also shows a deliberate disregard of good corporate governance standards that foster increased accountability and confidence by depositors, shareholders and other stakeholders.
“The majority of members of the ad-hoc committees were persons aligned to or representing the interests of THL. To compound the matters, the executive directors were excluded from attending some of the meetings where key decisions favourable to THL were made.”
Mangudya further warned that ZBFH’s capital adequacy levels could be compromised after a process to merge the group’s flagship commercial bank and its mortgage lender, ZB Building Society, stalled.
He added that the new strategic decision taken by the group will require additional capital of US$108 million and as a result the entities will be undercapitalised, risking failure to achieve the regulatory capital levels by 2020.
“For the sake of the stability of ZB and the financial system at large, the merger of ZB Bank Limited and ZB Building Society must be pursued to finality and efforts should be directed at preservation of capital and ensuring that ZB and its relevant subsidiaries achieve the capital levels as directed by the regulator,” Mangudya said.
On reforms, the central bank ordered ZBFH to constitute a nomination committee, the majority of whose membership shall be independent non-executive directors, adding that all appointments of non-executive directors should be done by the committee.
The appointment of independent non-executive directors, the central bank chief said, must be equitable and reflect the shareholding structure of the group, further ordering that all board committees must be reconstituted and chaired by non-executive directors.
“All senior positions should be recruited through established policies and procedures of the institutions,” Mangudya said.
The financial services group was also ordered to stop any ad-hoc committee from convening meetings to decide on key issues affecting the business.
ZBFH wholly owns ZB Bank Limited, ZB Reinsurance Limited, ZB Transfer Secretaries, ZB Capital and ZB Associated Services. It has a 75,33% stake in ZB Building Society and 64% shareholding in ZB Life Assurance. It also has interests in Mashonaland Holdings, Credit Insurance Zimbabwe and Cell Holdings. Intermarket Holdings Ltd was acquired by ZBFH in a debt-to-equity swap in 2006.