Business / Economy
Big wigs suck Zimbabwe banks dry
22 Mar 2015 at 03:09hrs | Views
The majority of banks that folded over the past five months choked on souring loans extended to top executives and serial debtors, The Sunday Mail reported.
AfrAsia is the latest victim of toxic loans affecting the banking sector after the Reserve Bank of Zimbabwe cancelled its licence on February 24, 2015.
In January, Allied Bank - majority owned by Transport and Infrastructure Development Minister Dr Obert Mpofu - voluntarily surrendered its licence to the RBZ.
In the same month, monetary authorities also applied for Interfin Holdings to be placed under provisional liquidation after it failed to capitalise over the course of its curatorship.
Although Tetrad Holdings is still open, its operations are wobbly as the RBZ directed the institution in November 2014 to stop taking deposits and issuing loans until it is properly recapitalised.
And information gathered by The Sunday Mail Business indicates that the failed banks have huge loan exposure and high concentration risks in their deposits.
Many of the people who owe the failed banks money are well heeled and bog companies.
Companies that dominate the loan book of these banks are RioZim, Lunar Chickens (owned by former RBZ Governor Dr Gideon Gono), West Properties (owned by Mr Ken Sharpe), Harambe Holdings (previously controlled by Mr David Govere), Croco Holdings (controlled by Mr Moses Chingwena), ZimAlloys (in which businessman Mr Farai Rwodzi was a key shareholder), and Zimglass.
AfrAsia, Allied Bank, Interfin and Tetrad's top 20 debtors owe a combined US$206 million.
Investigations show that the top five debtors in AfrAsia owe more than US$20 million. Lunar Chickens' obligations amount to US$7 million, followed by Zimglass and Rio Zim (US$4 million each), Wattle Company (US$2 million) and JR Goddard (US$3 million).
The top five debtors in Tetrad Holdings — Tetrad Holdings shareholders, West Properties, Tetrad Resources, Rio Zim and Croco Holdings — owe a combined US$25 million.
Allied Bank's exposure was relatively lower as its top five debtors (Zitac, Mr Brian Justice, the Zimbabwe Mining Development Corporation, Dalston, and Babiden Investments) owe US$1,3 million in total.
In Interfin Holdings, the top five delinquent loans came to more than US$70 million which was owed by Interfin Resources, ZimAlloys, Furhaven, Harambe Holdings and Lunar Chickens.
Notably, Lunar Chickens has huge debts to both AfrAsia and Interfin Holdings; and South African firm ASP Marketing CC has approached the High Court in an attempt to recover US$2,2 million accrued from the supply of maize and soyabeans for the poultry firm.
Oasis Motors is also seeking legal recourse to recover a US$1,5 million debt after supplying cars to Lunar Chickens.
Insider loans are also a major concern for the banking sector. Last year, the RBZ said US$175 million was given out as insider loans by all banks.
The figure included the US$60 million in insider loans that soured in Interfin Banking Corporation on poor corporate governance and general abuse of shareholder funds by the bank's shareholders and individuals linked to them.
Interfin's shareholders included founders Mr Timothy Chiganze, Mr Rwodzi and Mr Jerry Tsodzai, who owned a combined 54,2 percent of the business.
The trio was accused of violating prudential lending limits.
An investigation into Interfin by the central bank in 2012 indicated that while the bank reported insider loans of US$2,9 million as at December 31, 2011, the figure was in fact US$63,3 million, yielding a negative core capital of US$49,3 million.
The same situation prevailed at Tetrad Holdings where US$30 million of US$62 million in non-performing loans (NPLs) was a result of insider lending.
Tetrad Investment Bank's provisional judicial manager Mr Winsley Militala says the bank has continued to report significant losses since 2009 except for the year ending September 30, 2011.
Total liabilities exceed assets by US$26,3 million and there are doubts if the bank can still continue as a going concern.
A recent report shows that 99 percent of the bank lending comprises NPLs, 40 percent being unsecured loans amounting to US$25,1 million and 30 percent being loans to related parties amounting to US$19 million — the majority of them unsecured.
The report indicates that because 99 percent of the loan book, which is US$62 million, was considered non-performing, the bank had to rely on just 1 percent of the book to generate interest income to fund its operations.
Authorities are also concerned that the placement of cash with Metbank (US$8,42 million) and Ecobank (US$4 million) was in fact cash cover required by the two banks to guarantee loans granted to Tetrad Holdings amounting to US$12,42 million.
Tetrad last signed audited accounts in 2012.
Statutory financial statements for 2013 and 2014 have not been signed off by auditors, while the 2013 financials have not been signed off because of non-payment of audit fees.
Adds the report:
"The banking regulation requires that banks publish their financial statements no later than three months after the financial year-end.
"This has not happened for the past two consecutive years. The loan balances amounting to US$25,2 million are unsecured representing 40 percent of the book while 50 percent of the loan book is secured with properties.
"These properties are not sufficient security as their values are lower than the debt they secure leaving the bank exposed.
"It is therefore the provisional judicial manager's considered opinion that the bank should be placed under provisional liquidation in order to salvage the value that remains at the bank for the benefit of its depositors and creditors."
To the scrap heap
Since the turn of the millennium — a period coinciding with the Zimbabwe Democracy and Economic Recovery Act (Zidera) legislated by the United States to punish Zimbabwe, and additional economic sanctions from the European Union — several financial institutions have been confined to the scrapyard of failed banks.
These include Time, Trust, Genesis, ReNaissance Merchant, Interfin, Royal and Capital banks.
Royal Bank surrendered its licence in June 2012 after the RBZ discovered company directors were involved in serious abuse of depositors' funds.
Like Trust Bank, Royal had been reissued with a licence after suffering the same fate in 2004.
When Royal shareholders surrendered their licence, the bank had a capital base of US$1,9 million against the requisite US$12,5 million for commercial banks, and had cumulative losses of US$6 million to June 2012.
About 99,2 percent of the bank's portfolio was not performing while some shareholders refused to sign off the bank's accounts.
Royal was closed just after Interfin was placed under curatorship, while Genesis voluntarily surrendered its banking license after failing to meet minimum capital thresholds.
Royal was founded in 2001 but three years later, the RBZ closed it together with Barbican and Trust banks.
Capital Bank closed after it emerged top shareholders of its holding company borrowed millions of dollars of depositors' funds in breach of banking regulations.
Central to the outflow of cash to top shareholders was Mr Patterson Timba, who was the largest shareholder and effective controlling shareholder in Renaissance Financial Holdings, which owned 100 percent of Renaissance Merchant Bank.
Investigations by the RBZ found he and close colleagues borrowed millions of dollars through loan schemes unsanctioned by normal banking systems.
The unsanctioned loans to directors left the bank with a capital deficit of US$16,6 million and in need of a capital injection of US$31 million to restore the capital base to required levels at that time.
The RBZ probe established that besides taking the lion's share of the bank's loans, Mr Timba also compromised the bank's liquidity through obtaining loans or funds from other financial institutions on the back of money market deposits placed by Renaissance.
AfrAsia's huge liabilities of more than US$100 million, low capitalisation levels of US$6,1 million as at December 31, 2014 and a damaged reputation stemming from a costly legal wrangle adversely affected the company's operations.
But it is the latest development in the banking sector that has sparked concerns that the sector will effectively cut back on spending in order to prudentially manage risk.
The central bank has however been trying to increase the proportion of loans extended to productive lending.
Official statistics indicate that the proportion of productive lending had risen to 45,6 percent at the end of last year from 29,1 percent a year earlier.
RBZ Governor Dr John Mangudya in January said they were determined to free the industry of distressed banks by June 30 this year.
The IMF has also urged monetary authorities to deal with vulnerable banks to limit systemic risk.
Though the RBZ expects banks to increase their minimum capital threshold, a three-tier system has since been proposed which effectively classifies banks according to their capacities.
Tier I banks are expected to have a minimum core capital requirement of US$100 million by 2020 to enablem them to absorb the risk associated with the scope and complexity of their activities.
Tier II banks comprising commercial banks, merchant banks, building societies, development banks, finance houses and discount houses are only expected to conduct their core banking activities. A minimum capital requirement of US$25 million for this segment is required.
Deposit-taking microfinance institutions fall in the Tier III category.
Despite the turmoil in some banks, the banking sector remains largely profitable as the aggregate net profit for the sector rose to US$52,3 million for the year ended December 31, 2014 from US$3,4 million a year earlier.
Furthermore, by the end of last year CBZ had surpassed the Tier I minimum capital requirement at US$109 million, while four banks - CABS, Stanbic, BancABC and Standard Chartered - had capital levels above US$50 million.
AfrAsia is the latest victim of toxic loans affecting the banking sector after the Reserve Bank of Zimbabwe cancelled its licence on February 24, 2015.
In January, Allied Bank - majority owned by Transport and Infrastructure Development Minister Dr Obert Mpofu - voluntarily surrendered its licence to the RBZ.
In the same month, monetary authorities also applied for Interfin Holdings to be placed under provisional liquidation after it failed to capitalise over the course of its curatorship.
Although Tetrad Holdings is still open, its operations are wobbly as the RBZ directed the institution in November 2014 to stop taking deposits and issuing loans until it is properly recapitalised.
And information gathered by The Sunday Mail Business indicates that the failed banks have huge loan exposure and high concentration risks in their deposits.
Many of the people who owe the failed banks money are well heeled and bog companies.
Companies that dominate the loan book of these banks are RioZim, Lunar Chickens (owned by former RBZ Governor Dr Gideon Gono), West Properties (owned by Mr Ken Sharpe), Harambe Holdings (previously controlled by Mr David Govere), Croco Holdings (controlled by Mr Moses Chingwena), ZimAlloys (in which businessman Mr Farai Rwodzi was a key shareholder), and Zimglass.
AfrAsia, Allied Bank, Interfin and Tetrad's top 20 debtors owe a combined US$206 million.
Investigations show that the top five debtors in AfrAsia owe more than US$20 million. Lunar Chickens' obligations amount to US$7 million, followed by Zimglass and Rio Zim (US$4 million each), Wattle Company (US$2 million) and JR Goddard (US$3 million).
The top five debtors in Tetrad Holdings — Tetrad Holdings shareholders, West Properties, Tetrad Resources, Rio Zim and Croco Holdings — owe a combined US$25 million.
Allied Bank's exposure was relatively lower as its top five debtors (Zitac, Mr Brian Justice, the Zimbabwe Mining Development Corporation, Dalston, and Babiden Investments) owe US$1,3 million in total.
In Interfin Holdings, the top five delinquent loans came to more than US$70 million which was owed by Interfin Resources, ZimAlloys, Furhaven, Harambe Holdings and Lunar Chickens.
Notably, Lunar Chickens has huge debts to both AfrAsia and Interfin Holdings; and South African firm ASP Marketing CC has approached the High Court in an attempt to recover US$2,2 million accrued from the supply of maize and soyabeans for the poultry firm.
Oasis Motors is also seeking legal recourse to recover a US$1,5 million debt after supplying cars to Lunar Chickens.
Insider loans are also a major concern for the banking sector. Last year, the RBZ said US$175 million was given out as insider loans by all banks.
The figure included the US$60 million in insider loans that soured in Interfin Banking Corporation on poor corporate governance and general abuse of shareholder funds by the bank's shareholders and individuals linked to them.
Interfin's shareholders included founders Mr Timothy Chiganze, Mr Rwodzi and Mr Jerry Tsodzai, who owned a combined 54,2 percent of the business.
The trio was accused of violating prudential lending limits.
An investigation into Interfin by the central bank in 2012 indicated that while the bank reported insider loans of US$2,9 million as at December 31, 2011, the figure was in fact US$63,3 million, yielding a negative core capital of US$49,3 million.
The same situation prevailed at Tetrad Holdings where US$30 million of US$62 million in non-performing loans (NPLs) was a result of insider lending.
Tetrad Investment Bank's provisional judicial manager Mr Winsley Militala says the bank has continued to report significant losses since 2009 except for the year ending September 30, 2011.
Total liabilities exceed assets by US$26,3 million and there are doubts if the bank can still continue as a going concern.
A recent report shows that 99 percent of the bank lending comprises NPLs, 40 percent being unsecured loans amounting to US$25,1 million and 30 percent being loans to related parties amounting to US$19 million — the majority of them unsecured.
The report indicates that because 99 percent of the loan book, which is US$62 million, was considered non-performing, the bank had to rely on just 1 percent of the book to generate interest income to fund its operations.
Authorities are also concerned that the placement of cash with Metbank (US$8,42 million) and Ecobank (US$4 million) was in fact cash cover required by the two banks to guarantee loans granted to Tetrad Holdings amounting to US$12,42 million.
Tetrad last signed audited accounts in 2012.
Statutory financial statements for 2013 and 2014 have not been signed off by auditors, while the 2013 financials have not been signed off because of non-payment of audit fees.
Adds the report:
"The banking regulation requires that banks publish their financial statements no later than three months after the financial year-end.
"This has not happened for the past two consecutive years. The loan balances amounting to US$25,2 million are unsecured representing 40 percent of the book while 50 percent of the loan book is secured with properties.
"These properties are not sufficient security as their values are lower than the debt they secure leaving the bank exposed.
"It is therefore the provisional judicial manager's considered opinion that the bank should be placed under provisional liquidation in order to salvage the value that remains at the bank for the benefit of its depositors and creditors."
To the scrap heap
Since the turn of the millennium — a period coinciding with the Zimbabwe Democracy and Economic Recovery Act (Zidera) legislated by the United States to punish Zimbabwe, and additional economic sanctions from the European Union — several financial institutions have been confined to the scrapyard of failed banks.
These include Time, Trust, Genesis, ReNaissance Merchant, Interfin, Royal and Capital banks.
Royal Bank surrendered its licence in June 2012 after the RBZ discovered company directors were involved in serious abuse of depositors' funds.
Like Trust Bank, Royal had been reissued with a licence after suffering the same fate in 2004.
When Royal shareholders surrendered their licence, the bank had a capital base of US$1,9 million against the requisite US$12,5 million for commercial banks, and had cumulative losses of US$6 million to June 2012.
About 99,2 percent of the bank's portfolio was not performing while some shareholders refused to sign off the bank's accounts.
Royal was closed just after Interfin was placed under curatorship, while Genesis voluntarily surrendered its banking license after failing to meet minimum capital thresholds.
Royal was founded in 2001 but three years later, the RBZ closed it together with Barbican and Trust banks.
Capital Bank closed after it emerged top shareholders of its holding company borrowed millions of dollars of depositors' funds in breach of banking regulations.
Central to the outflow of cash to top shareholders was Mr Patterson Timba, who was the largest shareholder and effective controlling shareholder in Renaissance Financial Holdings, which owned 100 percent of Renaissance Merchant Bank.
Investigations by the RBZ found he and close colleagues borrowed millions of dollars through loan schemes unsanctioned by normal banking systems.
The unsanctioned loans to directors left the bank with a capital deficit of US$16,6 million and in need of a capital injection of US$31 million to restore the capital base to required levels at that time.
The RBZ probe established that besides taking the lion's share of the bank's loans, Mr Timba also compromised the bank's liquidity through obtaining loans or funds from other financial institutions on the back of money market deposits placed by Renaissance.
AfrAsia's huge liabilities of more than US$100 million, low capitalisation levels of US$6,1 million as at December 31, 2014 and a damaged reputation stemming from a costly legal wrangle adversely affected the company's operations.
But it is the latest development in the banking sector that has sparked concerns that the sector will effectively cut back on spending in order to prudentially manage risk.
The central bank has however been trying to increase the proportion of loans extended to productive lending.
Official statistics indicate that the proportion of productive lending had risen to 45,6 percent at the end of last year from 29,1 percent a year earlier.
RBZ Governor Dr John Mangudya in January said they were determined to free the industry of distressed banks by June 30 this year.
The IMF has also urged monetary authorities to deal with vulnerable banks to limit systemic risk.
Though the RBZ expects banks to increase their minimum capital threshold, a three-tier system has since been proposed which effectively classifies banks according to their capacities.
Tier I banks are expected to have a minimum core capital requirement of US$100 million by 2020 to enablem them to absorb the risk associated with the scope and complexity of their activities.
Tier II banks comprising commercial banks, merchant banks, building societies, development banks, finance houses and discount houses are only expected to conduct their core banking activities. A minimum capital requirement of US$25 million for this segment is required.
Deposit-taking microfinance institutions fall in the Tier III category.
Despite the turmoil in some banks, the banking sector remains largely profitable as the aggregate net profit for the sector rose to US$52,3 million for the year ended December 31, 2014 from US$3,4 million a year earlier.
Furthermore, by the end of last year CBZ had surpassed the Tier I minimum capital requirement at US$109 million, while four banks - CABS, Stanbic, BancABC and Standard Chartered - had capital levels above US$50 million.
Source - The Sunday Mail
