Friday, June 03, 2011

(HERALD) RMB under curatorship

RMB under curatorship
Thursday, 02 June 2011 23:02
By Victoria Ruzvidzo and Martin Kadzere

THE Reserve Bank of Zimbabwe yesterday placed Renaissance Merchant Bank under curatorship to investigate fully and institute corrective measures at the technically insolvent institution.

The bank has a negative capital of US$16,7 million against the prescribed minimum capital requirement of US$10 million for merchant banks. RMB board chairman Mr Lovemore Moyo, Renaissance Financial Holdings group chief executive and major shareholder Patterson Timba and other top managers have been simultaneously fired as a corrective order.

Briefing journalists in Harare yesterday, RBZ Governor Dr Gideon Gono termed the move on Renaissance as a "recuperative curatorship", warning the entire banking sector against indulgence in fraudulent and "other undesirable activities" in abuse of depositors's funds.

The decision, endorsed by Finance Minister Tendai Biti, was taken by the RBZ board as the best possible option, he said.

"As regulator, the Reserve Bank, supported by the full RBZ board, has weighed the pros and cons of all feasible options and came to the firm conclusion that the most suitable option is that of immediately placing

RMB under recuperative curatorship for six months, a period which should give the curator, working with the central bank and new shareholders ample time to put in place a robust framework to bring about recovery and lasting stability of the institution," said Dr Gono.

Mr Regis Saruchera of Grant Thornton Camelsa has been appoi-nted curator.
Board members present at the Press briefing - Dr Daniel Ndlela, former High Court judge Justice George Smith and corporate governance expert Mr Nyasha Zhou - concurred that glaring irregularities had been unearthed and due processes followed, hence the decision to place the bank under curatorship.

The latest development, which rekindles memories of the 2004 banking sector crisis that claimed the scalps of some banks, was a culmination of investigations by the central bank's banking, licen-sing, supervision and surveillance division that unearthed gross irregularities at Renaissance.

RMB, which operates under the Renaissance Financial Holdings Group stable, will close its doors for two weeks with effect from today and reopen to the banking public by Monday June 20 under the curator's management.

Dr Gono stressed that the primary purpose of placing the bank under curatorship was to protect depositors, preserve RMB's assets and the stability of the financial sector.

The central bank moved into Renaissance in April to investigate the affairs of the bank to ascertain its financial status, including profitability, liquidity and solvency.

The apex bank also wanted to investigate the extent of inter-party related lending, intra-group indebtedness and abuse of office by directors and also to validate the gross abuse of depositors' funds.

The investigations revealed deficiencies that included inadequate capitalization, a skewed shareholding structure, poor corporate governance structures and internal controls, systematic abuse of depositors funds, non-performing insider and related party loans and gross violation of banking laws.

RMB has been facing serious challenges since 2009. As at December 31, last year, the bank reported core capital of about US$4,43 million which was significantly lower than prescribed minimum capital requirement of US$10 million required for merchant banks.

Investigations showed that executive management at the bank controlled close to 90 percent of the institution, in violation of banking regulations, which limits an individual and his related interests in a bank to 25 percent.

Mr Timba himself has direct and indirect shareholding amounting to 44,7 percent while RFHL has direct and indirect shareholding amounting to 24,2 percent.

Major shareholders maintained their stake in the bank through schemes that involved borrowed funds and abuse of deposits. It was also discovered that the bank bought back some of its shares using depositors funds in violation of Section 32 of the Banking Act.

Mr Timba and Mr Dunmore Kundishora were in control of the bank's day-to-day operations, operating as de facto executive directors and signatories of the bank, disregarding good corporate governance structures.

Non-performing loans constituted 38 percent of the total loan book, the bulk of which were loans to insiders.

"This engagement in both cannibalistic and incestuous non-performing insider loans under the veil of a convoluted network of both sister and sinister companies and trusts designed to camouflage reality on the ground disguised the personalities behind them including the purpose for which those transactions were taking place," said Dr Gono.

RMB will require at least US$32,6 million to comply with regulatory capital requirements, a figure that could rise to US$55 million capital requirements after taking into account contingent liabilities of US$22,6 million from the holding company, among others.

Yesterday Dr Gono assured the banking public that there would be no contagion effect on the rest of the banking sector.

"The financial sector as a whole is generally safe and sound and there is no reason to feel any sense of instability. To do so would be to engage in illogical reasoning because the fact that there could be people in hospital does not mean that the whole country is sick.

"It, however, does not mean that we ignore the happenings at RMB in much the same way as those out of hospital should not ignore the effects and possibilities of catching the same diseases.

"We are very vigilant as a regulator to ensure the contagion effect is contained," said the RBZ chief.

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