News that the Zimbabwe Anti-Corruption Commission (Zacc) is investigating allegations of fraud and externalisation is not only welcome, but long overdue. It is said the banks under probe are Interfin, Royal, Trust, Allied, Tetrad and AfriAsia.
Daniel Ngwira,Chartered Accountant
I am a strong proponent of good corporate governance, honesty and integrity in business dealings as well as protection of depositors’ interests. A well-run financial system easily attracts foreign investment into the country. Where bankers go unpunished after wrongdoing, it destroys confidence in the financial markets. It even taints the image of illustrious bankers who want the good of depositors and the country. Many people wonder how it is possible that bankers who have pillaged depositors’ and government funds walk free in Harare.
While we cannot exonerate any bank until all the facts are laid bare, it does appear that the trio of Allied, Royal and Trust must have collapsed because of a failed business banking model. These three banks were all bundled into the Zimbabwe Allied Banking Group (ZABG) following the fall of Trust, Barbican and Royal before dollarisation. At that point Trust was a financial behemoth which, if the momentum had not been interrupted, could have easily painted Harare green. It dominated our own “Wall Street”, (Samora Machel Avenue), in its heyday. Trust was the envy of many until its untimely fall in 2004.
The then governor of the Reserve Bank of Zimbabwe (RBZ), Gideon Gono, then tried to stabilise the financial sector through the Troubled Bank Resolution Act and in the process created ZABG, which initially was supposed to bag Trust, Intermarket, Barbican and Royal Bank. Intermarket was pulled out of the equation following a separate private arrangement in which it was merged with ZB Bank. Throughout its entire life, ZABG operated under a mist and controversy as it continued to face litigation from the former owners of the failed banks which became components of the bank. The loud cries came from Trust and Royal.
The business model, which was adopted by ZABG failed from the onset in that there was compulsory conversion of deposits into a class of shares which could not be redeemed for cash. In addition, the shares were overvalued. I was part of the team that was tasked to do a valuation of the shares. While we advised that the shares were overvalued, management did not take heed.
As the government-owned Allied Financial Services had the majority stake, it meant that the former depositors had neither a say in the affairs of the company, nor access to their deposits. The government-owned company became a majority shareholder following the liquidity support that was given to the component banks especially the flagship Trust which accessed billions in liquidity support through the Troubled Bank Fund at high accommodation rates of 300% on overnight. While this appeared to be a relief to a bank which was facing demise, it turned out that this became the final nail in the coffin.
The compound effect of this punitive rate meant that no bank would survive given the regularity with which Trust was accessing accommodation funds. This was made worse by the fact that after the sacking of Christopher Goromozi, William Nyemba and Nyevero Hlupo, the bank lacked astute leadership to match the trio. While many were made to believe that Gono deliberately sank Trust Bank, readers should know that in recent history, there has never been a bank that received massive support from the central bank and government to prevent its collapse than Trust Bank. The decision to assist Trust Bank was made by Gono.
Following protracted legal battles and discussions, the government decided to disband ZABG, giving the component banks to their original owners. ZABG was left a shell as traceable assets were transferred back to their original banks. Time had moved considerably; the market was no longer the same. Capitals required were now in real dollars compared to the time these banks had been established when they had been capitalised with the local dollar through a string of deals, including being propped up by the parallel market.
While Trust Bank and Royal Bank re-opened, Barbican opted not to. Eventually there were three small undercapitalised banks, namely Trust, Allied and Royal. All these banks enjoyed very little confidence from the market. Trust had hope of re-living the old glory days, but the game had changed. They came into a market which was then dominated by Interfin, FBC Bank and CBZ Bank from the stand point of local banks. This was never the case during their time.
On the other hand Royal Bank was a small shadow of its original self other than its brighter colours. Despite that all the three banks had top talent; they had very little confidence of the market and capital. Their models were more of micro finance institutions than banks. For that I have a strong belief that there is a good chance they failed because of undercapitalisation and general failure of business models than externalisation.
But where all or some accepted deposits from customers and decided to lend to insiders, then that must be punishable by restitution or criminal justice system as appropriate. Then acting governor of the RBZ Charity Dhliwayo reported that as at December 31 2013, total insider loans in the banking sector were US$175,3 million and of these 66,97% or US$117,4 million were non-performing.
It is interesting to note that the bulk of the non-performing loans (NPLs) were from Interfin. Insiders at this failed bank bagged about US$100 million which funded Interfin Holdings, its subsidiaries and shareholders.
In 2015, employees drafted a petition to parliament, the RBZ and other agencies to call for action against directors and managers who had deliberately run down the bank to their benefit. I was a key author of this petition and other documents which called for wrongdoers to be brought to account and for depositors’ interests and rights to be upheld.
During the inclusive government, a decision was made to revive the industry through the Zimbabwe Economic Trade Revival Facility. US$20 million was paid into Interfin Bank and it ended in non-performing insider loans. In other words, the desire of government to revive a number of businesses came to naught as three Interfin shareholders took the money into their pockets as they essentially bagged over US$90 million in insider loans.
If the Zimbabwe Anti-Corruption Commision (Zacc) engages former employees and experts, they will understand that despite the fact that some shareholders of failed banks did not sit on boards or in the “C Suite”, they in fact, were in the driving seat and as such should pay for their sins. These shareholders, widely known for their intolerance of managers they did not like or who did not follow their instructions, could have easily fired management if they did not approve of their actions. They were, essentially, what we call “shadow” directors. I have deliberately excluded names at this point to allow for due process by Zacc to take place.
Kudenga, the first black chartered accountant in Zimbabwe, acting as a liquidator agent for Interfin Bank in 2015, requested creditors of the bank to vote for a resolution “to instigate legal proceedings against the parties found to be at fault in their individual capacities in the event that these are found to be reckless and/or negligent in the discharge of their oversight responsibilities over the bank’s activities”. This vote passed, but it is taking long to conclude this matter.
There is overwhelming evidence that management and directors were reckless in some failed banks. The longer the law enforcement agents take, the more there is natural attrition of ex-employees who are willing to provide documented and oral evidence.
The prevalence of insider Non-Performing Loans (NPLs) is also sufficient to pin down the directors and managers who were directly responsible for these activities. A bank is established to accept deposits and lend them to deficit units or borrowers. Directors of banks have a fiduciary duty towards their customers. They owe it to them to ensure their deposits are protected. That bankers advanced substantial amounts of money without security, more so to themselves, is not only scandalous but criminal.
What this entails is that it was convenient for the bankers to start banks with very little and in some cases borrowed capital and lend themselves the money and escape jail yet someone who steals a cow could be imprisoned for seven years. Who, of the two, would have committed a more heinous deed? Today any foreign currency trader caught trading on the black market or suspected to be trading on the black market, faces 10 years in prison. What should be the starting point? Bankers who presided over failed banks find themselves comfortable in Borrowdale, Umwinsdale, Glen Lorne, farm houses and prestigious board seats.
But why do bankers go unpunished in Zimbabwe? At least two former owners and directors of failed banks in Zimbabwe ended up as cabinet ministers and members of parliament and one was appointed to a state board.
In South Africa, KPMG appeared before that country’s Parliament’s Standing Committee on Public Accounts. The firm is accused of propping up the Gupta family in allegations of state capture. Due to pressure, there is now new management at the firm, while clients, including parliament are switching off ties with the firm, one of the big four. Parliament is demonstrating its exercise of oversight through conducting public hearings. This is what is missing in Zimbabwe.
Depositors of the banks said to be under probe lost about half a billion US dollars, but nothing happened. KPMG did not cause the loss of hundreds of millions of US dollars, but they are under pressure. We call this accountability.
KPMG will be judged fully after the facts have been heard but what is important at this juncture is that they are being made accountable to someone, which is missing in our country.
Ngwira is a chartered accountant, former bank treasurer and former university lecturer. He holds finance and business qualifications. — email@example.com/ cell: +267 73 113 161.