US$15m depositors’ funds trapped

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Trust Bank’s liquidation order is yet to be finalised

Business Reporter
DEPOSITORS are currently struggling to retrieve their money from a US$15 million black hole created after the collapse of three banks – Trust Banking Corporation, Genesis Investment Bank and Royal Bank.Last week, Capital Bank Corporation – former Renaissance Bank – was added to the list of failed banks after the Reserve Bank of Zimbabwe cancelled its licence, noting that the move was in the best interest of depositors, shareholders and members.

The National Social Security Authority, a statutory body created in 1989 to pool resources and provide a safety net for pensionable workers, and a majority shareholder in Capital Bank, has more than US$39 million locked in the institution.

Trust Bank, whose banking licence was cancelled in December last year over allegations of violating the Banking Act, owes depositors more than US$2,5 million; while Genesis, whose licence was revoked in 2012, has more than US$1,4 million deposits under lock and key.

Deposits trapped in Royal Bank total more than US$11,4 million. Cumulatively, more than 8 496 corporate and individual depositors were affected.

The Depositors’ Protection Corporation, an autonomous statutory body established in 2003 under the Banking Act Chapter 24:20 to administer the Deposit Protection Fund (the Fund), has been trying to repay the affected customers. However, of the US$15 million owed, the corporation, whose express mandate is to provide deposit insurance to depositors in registered deposit-taking institutions (commercial banks, merchant banks, finance houses, discount houses and building societies), had only managed to pay a paltry US$450 000.

Information gathered by The Sunday Mail Business last week indicated that an estimated 66 percent or 3 598 of the 5 453 depositors in Royal Bank had been repaid while 56 of the 85 depositors (69 percent) and 32 percent of the 2 958 depositors in Genesis and Trust Banks respectively had received part payments. Under the current dispensation, depositors, either individual or corporate, can only get a maximum of US$500, with the balance being settled through the liquidation process, which often drags on interminably.

In order to fine tune the process, the new Deposit Protection Corporation Act Chapter 24:29 expands DPC’s mandate to also include liquidation and curatorship of banks. Legal processes, presently at various stages, are underway to wind up the operations of some of the failed financial institutions.

Trust Bank is under provisional liquidation in terms of a December 18 2013 High Court Order HC 10703/13 issued by Justice Loice Matanda-Moyo.

The central bank cancelled Trust Bank’s licence arguing that the financial institution was financially unsound and had also failed to operate within sound administrative and accounting practices. Financial experts claim the bank was weighed down by a poor loan book, inadequate working capital and abuse of depositors’ funds. At the time the bank was closed it was seriously undercapitalised, with core capital at US$1,9 million against RBZ’s capital threshold of US$75 million by December 2013. But depositors are still being inconvenienced as the case continues to play out in the courts.

The High Court set aside Trust Bank’s liquidation order in March this year. Lawyers representing the bank claim that the liquidation order was “unlawful and unconstitutional”.

Similarly, Royal Bank, which is also under provisional liquidation, surrendered its licence on July 27 2012 after failing to meet the prudential minimum capital requirements.

The apex bank had to apply after the institution failed to court investors, even after the seven months grace period given by RBZ. Royal Bank was eventually placed under provisional liquidation on February 20 2013.

Shareholders are now claiming that they were not given enough time to source potential investors. The case was set down for hearing before Honourable Justice Zhou on December 17 2013.

Judgment has been reserved, implying that the bank is still under provisional liquidation and creditors and employees cannot be paid by the liquidator until the bank is placed under final liquidation.

In an interview last week, DPC chief executive Mr John Chikura said there was need for the establishment of a commercial court as the on-going legal disputes between banks and RBZ were prejudicial to stakeholders.

“The current on-going legal disputes mainly between the RBZ and some of the closed banks has had a severe effect on depositors with balances above the insurable limit as this delays the liquidation process.

“Kindly note that all amounts above the limit of US$500 will be compensated to depositors via the liquidation process. There are clients who want their reimbursements in cash and these take their time to come and collect it as they come from various parts of the country.

“Some clients leave small amounts in their accounts after having drawn their salaries, which amounts are very insignificant for one to travel to DPC and collect, and some of these clients will eventually decide to ignore their deposits.

“To overcome some of these challenges, DPC is now using mobile banking and this has increased the pay-outs significantly. Sometimes the time lapse from the closure of the bank until determination of the court process is made will result in some depositors forgetting about their deposits.

“There is often non-response from some of the clients despite various communication efforts done such as Press advertising, telephone calls, letters, SMS and e-mail messages. Some clients have changed their details such as contact numbers and addresses, which makes it very difficult to contact them to facilitate the reimbursement,” said Mr Chikura.

He further noted that the banking sector was a sensitive sector which requires speedy resolution of issues.

“There is need for a review of the problem so that depositors can quickly access their funds without going through the cumbersome court process which can take years to conclude cases,” added Mr Chikura.

He admitted that the US$500 and US$150 paid out to depositors in collapsed banks is inadequate and should be increased to about US$1 000, but he believes that fresh capital will be needed to facilitate the adjustment.

The Depositors’ Protection Fund, which is administered by the DPC, was a Government policy response to a growing need to moderate instability in the banking sector and to protect the public, especially small depositors, against the worst effects of bank failure.

Earlier this year, the RBZ 2014 Monetary Policy Statement lobbied for the establishment of a Commercial Court to expeditiously deal with banking-related cases. The then acting Governor, Dr Charity Dhliwayo, noted that the existing court system was taking long to settle the disputes.

It is envisaged that establishment of the institution will be done under the provisions of the proposed amendment to the Banking Act. Consultations are believed to be underway.

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