The Sunday Mail
Darlington Musarurwa: Business Editor
CYNICS often derisively claim that amateur crooks rob banks, while professional thieves actually found them. It is a statement that summarises the contempt and disgust that is directed towards the devastating scale of carnage that is often left behind when greedy bank directors loot banks dry.And it is often small-time depositors that suffer the most. By contrast, gun-toting bank robbers usually only manage to get away with a small fortune in successful bank heists.
The enduring memory of an elderly depositor interjecting and imploring the Assistant Master of the High Court, Ms Stella Chapwanya, to explain to her — in a language she could understand – the fate of her money locked up in collapsed Allied Bank highlights the desperate face of ordinary depositors who are left to pick up the pieces when banks fail.
The aggrieved depositor felt compelled to confront the individuals who were chairing a creditor’s meeting for Allied Bank held on May 5, 2016 in the capital after being subjected to a snobbish, jargon-laced explanation, the bulk of which she could not understand.
For her, what simply matters is when and how she will be able to recover her money.
Though Allied Bank had its operating licence cancelled by the Reserve Bank of Zimbabwe on January 8, 2015, the liquidation process has not been wound up as yet.
On July 18 this year, the chief executive officer of the Deposit Protection Corporation, Mr John Chikura, indicated that the Corporation, which is mandated by law to wind up failed financial institutions, was still struggling to recover most of the funds owed by debtors as most of it is not secured.
Also, some of Allied Bank’s “assets” — valued at more than US$16 million and creatively used by directors to artificially boost its balance sheet — are currently under dispute.
To put this into perspective, as of June 30, 2016, the DPC had only recovered US$825 000 against creditor claims worth more than US$15,7 million. Suffice to say, some of the depositors, who held more than US$600 in the accounts, are still agonising if there will be repaid.
One can imagine that as depositors suffered, sleek bank directors were far from the madding crowd, comforted by the ill-gotten wealth they amassed.
Though Allied Bank liquidators have threatened to institute legal proceedings against the directors, market watchers say it is a long shot in the dark as the offending parties knew their way around a system that was allegedly fraught with many loopholes.
The antidote
The Reserve Bank of Zimbabwe thinks it has the antidote to ensure depositors’ funds will no longer be abused as directors foolish enough to try to cheat the system will now be held criminally liable.
The central bank says Banking Amendment Act Number 12 of 2015, which became operational on gazetting on May 13, 2016, provides a watertight legal framework to close the gaps.
The framework seeks to protect consumers, enhance corporate governance and risk management, and facilitate the speedy resolution of failed banks. Though the duty of directors was previously spelt out in the Companies Act only, the new Banking Act lays out the statutory duties expected of them.
Most importantly, “any disregard of corporate governance requirements or violations of the law, which lead to loss of money by depositors will result in the directors being held personally liable for their actions and decisions”.
“Directors of banking institutions and principal officers would be held accountable and answerable for their actions … The law now specifically requires independent directors to be in the majority on the board as this allows for more checks and independent thought …
“The new amendments provide a detailed framework on problem bank resolution, which empowers the Reserve Bank to swiftly resolve problem banking institutions in the public interest and also places responsibilities on the Reserve Bank to protect assets of depositors during resolutions,” said RBZ Governor Dr John Mangudya in the Mid-Term Monetary Policy Statement last month.
Already, there is complementary legislation to peg the turnaround time for paying small depositors at 60 days. Such payouts have also been increased to US$1 000.
These interventions are expected to prevent prejudice to depositors and other creditors of financial institutions such as Interfin, which folded after a seemingly systematic scheme where depositors’ funds were used as a line of credit for companies owned by the directors.
When details of the extent of the goings on at Interfin came to light, they provided a lesson or two on the capture of financial institutions by directors, including the sophisticated engineering of transactions to sponsor the interests of the director’s companies that may lie outside the bank.
In such a system, if risky directors make speculate investments in companies they are linked to, they tend to benefit if the investments bear fruit.
However, if a loss arises from such an investment, it is depositors and creditors that are exposed.
On the contrary, the directors are provided a soft landing by the beneficiary companies that would have received the depositors’ funds.
A paper entitled “Financial Liberalisation and Crisis: Experience and lessons for Zimbabwe” — jointly authored by Dr Albert Makochekanwa, a senior lecturer at the University of Zimbabwe, and Dr Gibson Chigumira, the CEO of think tank Zeparu — argues that a moral hazard often occurs where the owners of under-capitalised banks have little shareholder capital to lose from risky investments.
“In such cases the incentives for imprudent lending are greatly increased because all the profits from the project are internalised where as that part of the loss incurred by depositors it externalised,” opines the report.
And this is exactly what happened at Interfin. Interfin Bank was placed under curatorship on June 11, 2012 after a three-month investigation by KPMG which revealed that the bank had a capital deficit of US$100 million.
For many, it was unsurprising as the bank had a concentrated shareholding structure in which directors Mr Farai Rwodzi, Mr Timothy Chiganze and Mr Jerry Tsodzai owned a combined 54,2 percent of the financial institution.
It is the actions of Mr Rwodzi, however, that are telling.
There were eye-catching investments that he made in companies he had substantial interests in. For example, he sank more than US$18 million in Savanna Tobacco in which he had an undisclosed shareholding when the prudential limit for the company had been set at US$150 000.
Similarly, as part of a consortium that had 85 percent shareholding in Zim Alloys, he facilitated a loan of US$14,1 million — 100 percent over the prescribed limit.
There were also indications that more than US$9,5 million in depositors money was lost in speculative investments in Art Corporation and Astra. In addition, about US$6 million sank down a dark hole in a gold deal by Interfin Resources, a subsidiary Interfin Holdings.
While Interfin directors walk scot-free, ordinary depositors doubt they will ever recover their money.
As a consolation, creditors voted on June 10, 2015 to institute legal proceeding against the directors. All in all, the directors are said to owe more than US$155 million. It is the same script for banks such as Royal Bank and Tetrad that DPC is struggling to wind up.
But the RBZ is confident that it has been able to do a good job mending the net to ensure that the big fish do not escape the consequences of abusing depositors’ funds.
Currently, there is a moratorium on insider loans as the legal instrument prescribing the limit that banks will lend to directors is being worked on.
The law also now restricts the number of directorships to three, and for a director the tenure of appointment to the board of a banking institution is a continuous period of 10 years.
Also such a director will not be eligible for the reappointment to the board unless at least five years have elapsed since he last served on that board.
The maximum shareholding that an individual or entity can own in a bank is now being considered in relation to the shareholding their relatives on related parties also have in the institution.
And there is a limit to the amount that they are also supposed to hold. In addition, banking institutions with controlling companies are required to register the bank holding companies.
Too little too late
But as authorities patch up the law to close the loopholes that were being exploited by directors for self-enrichment, it is feared that the horse might have bolted already.
In as much as the actions of the directors might have been unethical it would be hard to prove if they were illegal. The new law will also not be applied retrospectively.
And for the elderly Allied Bank depositor, she might definitely be in for an emotionally taxing roller coaster as she seeks to recover her money.
