Zanaco was a profitable bank, says former board member

COMMENT - More corruption coming out of the IMF. The Zambian government should sue them for tens of billions of dollars, because of loss of income, and loss of value due to the 'privatisation' process. By comparison, Zambia lost more money ($10s of billions) through privatisation, than is given to the entire continent of Africa in charible giving in a year ($6 billion). Privatisation is as scam, and so is 'Donor Aid' (which is $250 billion a year to the African continent).

Zanaco was a profitable bank, says former board member
By Kabanda Chulu
Fri 03 Feb. 2012, 13:00 CAT

IT is difficult to understand why the MMD government and its negotiating team insisted to pursue a flawed transaction process in selling a profitable bank, says former Zanaco board member Chiteta Ching'ambo.

Making submissions to the commission of inquiry into the sale of Zanaco yesterday in Lusaka, Ching'ambo, who was in charge of the audit sub-committee from 2003 to 2007, said the government through the Ministry of Finance, was advised that adopting the net asset value system was not the right way to sell Zanaco shares.

Net asset value method is usually applied when a company is under liquidation but Zanaco was fully operational and making profits at the time of privatisation.

Ching'ambo said some items in the share purchase agreement were not sincere.

"For instance, there is a clause that the value of the London Branch buildings shall remain the same as it was when the bank was evaluated in 2004 but this clearly contributed to undervaluation of the bank and I don't understand why such exception was made," Ching'ambo said.

"So it is difficult to understand why government and its negotiators followed this process which was not transparent and beneficial to the nation considering that the bank was profitable and its interim valuation report of 2003 revealed that Zanaco was worth between US$24 million and US$30 million."

When asked if government negotiators were not aware that the net asset value method will not result in higher returns, Ching'ambo said it was difficult to ascertain what they (negotiators) were thinking.

"There was very little information flowing from the negotiators to the board and management but when we heard some figures, we thought Zanaco was grossly undervalued and when we met the finance minister (Ng'andu Magande) and negotiators, we learnt that they were inclined to use the net asset value method but this system has serious flaws, especially when you don't do adjustments like including the current value of properties, land and buildings," he said.

"Interest from bonds (which government issued) alone would have been US$7 million per annum and this is what the valuation should have looked at instead of focusing on historical information."

He said that a false impression was created that Zanaco was making losses.

"This was not true because Zanaco, during a five-year period performed well and recorded some profit before tax amounting to K7.58 billion (2002), K3.58 billion (2003), K12.8 billion (2004), K44.8 billion (2005) and K39.2 billion (2006), this was the period when interest was denied on bonds issued by government and Bank of Zambia had imposed lending limits to only K500 million per client," Ching'ambo said.

"But despite the biggest assets (loans) not earning interest, Zanaco endeavoured to operate normally and at no point has Zanaco faced problems that could have been irredeemable."

He explained that some challenges faced by Zanaco started when the bank lent out US$69.9 million to Zambia National Oil Company (ZNOC) and US$9 million to Roan Antelope Mining Corporation (RAMCOZ).

"These two loans became delinquent (non-performing) and caused problems to the bank hence Zanaco was left with no option but to place the two entities on receivership but it was government's intention with persuasion from the IMF that ZNOC be liquidated while RAMCOZ be sold to another investor but government could not pursue this line because the companies were on receivership. So government negotiated with Zanaco and took over the debts and agreed to issue bonds amounting to K248.9 billion that will cushion the debts," Ching'ambo said.

"At issuance, it was agreed that bonds would accrue interest but before bonds were issued, IMF intervened that interest be paid after privatisation and for two and half years no interest was paid and this issue became the biggest asset of the bank which was non-performing. As a consequence of this, the London Financial Services authority put pressure that debts be paid in full or Zanaco should close its London Branch and also BoZ restricted lending to K500 million only per client."

Ching'ambo continued that it was difficult to understand the pressure exerted by IMF (not to pay interest on bonds) and why government obliged to ‘strangle its own baby' (Zanaco).

"ZNOC debt was guaranteed while the RAMCOZ one was secured by its assets. So Zanaco could have recovered the debt without government spending taxpayer's money through disposal of assets and Zanaco lost two. And half years of interest amounting to more than K100 billion of income and had we had this kind of money, with no restrictions and without ZPA/ZDA control, Zanaco could have moved forward," he said.

However, Ching'ambo said government paid first installment on interest in 2005 amounting to K17.4 billion and the second installment in 2006 amounting to K11 billion.

"These amounts were paid without consulting Zanaco and they were determined by government thus putting the bank in a precarious position because sometimes we came up with interim results thinking that government would service the bonds but to no avail. Also Zanaco was under pressure to budget for massive retrenchments and to reduce the staff pension scheme which stood at K27.9 billion," said Ching'ambo.

"As a result of these conditions, the London branch closed operations and it was impossible to manage operations of Zanaco. It was like being on care and maintenance and an impression was created that the bank was making loss but we pulled through, made little profits and very few banks could have survived under these conditions but it demonstrated how big, strong and reliable Zanaco is."