EDITORIAL COMMENT: This madness must stop!

19 Jul, 2015 - 00:07 0 Views

The Sunday Mail

THE horrible case of Royal Bank that we carry in The Sunday Mail Business, where the rule book and the corporate governance code were effectively put through the shredder as management went on orgy of feasting on depositors’ funds and allegedly fudging the bank’s books in order to deceive monetary authorities and the market must be taken with the seriousness that it deserves.

Banks by their very nature are a vital organ in any economy as their intermediary role helps to pool resources and allocate them to productive sectors.

It is precisely for this reason that banks and any financial institution for that matter are increasingly under the orbit of central banks.

But poring over the details and circumstances that led to the re-opening of Royal Bank in February 2011 and its subsequent closure in July 2012, it is difficult to ignore fundamental issues of oversight, corporate governance and blatant disregard to set rules, particularly the Banking Act. Sadly, Zimbabwe has been down this path before.

The clean-up of the banking sector in the period after December 2004, which coincidentally claimed the scalp of the same bank, was largely heralded as an epoch that could usher is sanity and prudential practices in the financial services sector.

Despite various crusades by the Institute of Directors of Zimbabwe (IoDZ), the Reserve Bank of Zimbabwe and Government, which recently launched a code of corporate governance, it still seems that country is still battling to exorcise this scourge.

But businesspersons, especially bankers, are not angels — they are creatures driven by profit.

It, therefore, follows that the laws must be tweaked to ensure that corporate governance breaches, particularly in cases that most likely prejudice innocent bankers, are criminalised. As bankers of failed banks — most of whom were criminally negligent — walk scot-free, depositors still carry the trauma of failing to access their hard-earned monies.

Most instructively, on April 9 this year and Indian court jailed Mr B Ramalinga Raju, the then chairman and also the founder of Satyam Computer Services, for nine years after he admitted to fudging the company’s accounts in 2009.

Apart from inflating the profits, Raju had understated the liability, accrued non-existent interest, overstated debtors and inflated cash and bank balances. It reads exactly like infractions that have been unearthed at Royal Bank. The scam involved Mr Ramalinga Raju and his brothers B Rama Raju and Suryanarayana Raju, including seven other players — former CFO Vadlamani Srinivas, former PW auditors S Gopalakrishnan and T Srinivas, former employees G Ramakrishna, D Venkatpathi Raju and Ch Srisailam and former internal chief auditor VS Prabhakar Gupta.

According to Mr Raju’s admission, “The company had to carry additional resources and assets to justify a higher level of operations thereby significantly increasing the costs. Every attempt made to eliminate the gap failed … It was like riding a tiger, not knowing how to get off without being eaten.”

If the country has to develop policies that are compatible to international best practices, it necessarily has to ensure that it is both strict and firm with market players.

An environment where rogue investors can afford to mess with the country’s banking sector with impunity doesn’t quite endear it with investors whose major pre-occupation is to protect their investment.

What makes the situation more worrying is that it is not Royal Bank that has been found to be in possible violation of the country’s laws and regulations.

On June 9, 2015 creditors of another failed bank Interfin Bank, who are owed a staggering US$155 million, unanimously voted to institute legal proceedings against the bank’s directors for the prejudice they suffered.

Interfin Bank, whose main shareholders Mr Jerry Tsodzai, Mr Farai Rwodzi and Mr Tim Chiganze held a combined 60 percent, collapsed mainly due high levels of non-performing insider loans that amounted to US$90,6 million as at January 27, 2015. It is shocking.

In March last year, Justice Rita Makarau told legislators attending a Zim-Asset workshop in Harare that they should consider setting up a dedicated commercial la to speedily deal with commercial crimes.

This is key and our legislators must seriously consider it.

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