THE closure of troubled banks is a boon for accounting firms which have been appointed to administer distressed financial institutions as they are reaping a grim harvest from the crisis.
The Zimbabwe Independent can this week reveal that chartered accountancy firms were being paid billions from depositors’ and shareholders’ funds for their work as curators and conducting forensic investigations on behalf of the central bank.
It has been learnt that a curator appointed to run a distressed bank is entitled to up to 7% of the total value of assets recovered. For example, assets worth $100 billion could be recovered at one commercial bank under curatorship. This means the curator is entitled to about $7 billion in fees for his services at the bank
Over and above this, the curator also charges professional fees and hourly rates of up $2 million.
The 7% fees are paid out in periodic disbursements authorised by the central bank. Apart from paying huge fees to curators, distressed banks also have to pay millions of dollars in legal fees as the curator is entitled to hire lawyers to assist in chasing up delinquent debtors.
However, sources yesterday said lawyers who have been hired to collect debts were hitting a brick wall due to lack of documentation.
“These cases are generally proving difficult due to the prevalence of insider loans and scant documentation,” a source said.
The source said senior employees privy to the disbursement of insider loans have since left the banks, making it difficult to gather information.
“The net effect of that is banks will fail to recover loans and insolvency will increase. There is no hope of revival in most of these banks,” he said.
Sources in the banking sector this week said accountancy firms which have been hired to carry out investigations into First Mutual Life (FML)’s dealings with Capital Alliance would be paid $1,5 billion from shareholder funds. The Commissioner of Insurance who commissioned the probe could not pay the fees, and it appears he ordered FML to foot the bill. Observers say it will be interesting to see how the bank declares the moneys paid to the accounting firm when it publishes its figures in December.
Shareholders of distressed banks have questioned the high fees being paid to the curators from non-performing assets.
At least half a dozen financial institutions have been put under curatorship by the Reserve Bank over the past 12 months. Curators from accounting firms were appointed to administer the banks on behalf of the Reserve Bank.
Intermarket Holdings’ subsidiaries Intermarket Building Society, its discount house and banking corporation were all placed under the curatorship of Ngoni Kudenga of Kudenga & Co Chartered Accountants on March 12 last year.
Barbican Bank was placed under the curatorship of Terry Matavire of KPMG Chartered Accountants on March 15 2004 after the RBZ discovered that the bank was not in a sound financial condition.
Trust Bank was closed on September 23 last year and put under the curatorship of Peter Bailey of KPMG.
Royal Bank was put under the curatorship of Robert McIndoe of Price Waterhouse Coopers at the end of September last year.
Time Bank was placed under curatorship in October and Tinashe Rwodzi of Price Waterhouse Coopers was put in charge
CFX was the last bank to be put under curatorship on December 16 last year. Fungai Kuipa of Ernst & Young was appointed curator.
It is not clear at the moment how much the curators have collected as the process is still continuing.