THE Zimbabwe Allied Banking Group (ZABG), an amalgam of collapsed banks, has been hit by serious problems since inception.
The former directors of the collapsed b
anks are suing it. There were also legal defects in its formation. Our business reporter Shakeman Mugari (SM) interviewed chief executive Stephen Gwasira (SG) about recent developments.
SM: Where is the bank getting money for operations if it is technically insolvent? The liabilities are more than $2 trillion while the assets are worth $725 billion.
SG: ZABG is not insolvent technically or in any other way. The amount of $2 trillion relates to the overall debt that all the troubled banks under curatorship owed the Reserve Bank. This debt, which resulted from liquidity support extended by the Reserve Bank to the troubled banks under the Troubled Bank Facility, represents market stabilisation costs, which, in line with international practice in the management of an economy, are for the account of the government.
SM: That’s an accounting explanation, what is the explanation for the man on the street.
SG: Accordingly, the government has assumed the $2 trillion debt which means the troubled banks now owe the government that amount. The loss reflected by the excess of liabilities over assets will be written off across other liabilities. Thus, theoretically and in practice, ZABG as a solution provider cannot be insolvent in a debt-equity conversion structure.
SM: Does it make sense now to say that the troubled banks owe the government? How will they pay the government if you have taken their assets into ZABG? Since you have taken the banks’ assets, why not their liabilities too?
SG: ZABG has bought the banks’ assets (Barbican, Royal and Trust). Unfortunately we can only take liabilities that are equal to the assets. We can’t take more than that?
SM: If that was the case then why didn’t ZABG just open its own business without dragging the troubled banks in?
SG: We wanted to save the depositors of the troubled banks from loss of value. Realise that if the banks had been liquidated the process was going to take longer while there would be serious erosion of value.
SM: Do you mean to say you were helping the depositors by deciding to give them shares in ZABG without consulting them? Giving them shares in a company they have no voting rights in?
SG: No. ZABG is actually a solution to preserve the depositors whose assets were threatened with liquidation. Let’s look at ZABG as a solution. We had to save the depositors and creditors whose investments were put in danger by directors and managers.
SM: Apart from its perceived size, what is ZABG’s other strength?
SG: ZABG has written some good business. We have been talking to some corporates who have expressed their interest in doing business with us. The response is overwhelming I tell you.
SM: How much business has the bank written so far?
SG: No I can’t reveal that but I can tell you that we are doing business and inquiries are encouraging. We are still talking to the corporate customers, hopefully we will have them on board soon.
SM: Has ZABG received the $2 trillion promised by government? I remember
RBZ governor Gideon Gono also talking about it.
SG: The government has never promised $2 trillion. They did not promise us any money.
SM: Let us discuss your board of directors. There were concerns about the appointment of some directors who were also doing consultancy jobs for ZABG. I mean directors like Douglas Mamvura with his Corporate Momentum doing marketing for ZABG.
SG: I don’t want to mention names but the fact is that every appointment to the board was on merit. These are people with very strong banking backgrounds in their areas of expertise. The process was very clean. Everyone there is highly qualified and competent. As for consultancy work, there is no director who is still doing any job for the bank. They have since concluded their work.
SM: But then how do you explain a consultant who happens to get a job as a director or senior manager at ZABG after providing service to the bank?
SG: As I said earlier on, we don’t need to mention names but we used a clear policy normal in other companies. Every one was interviewed. We were headhunting and some of those people were identified earlier even before their companies started consulting for ZABG.
SG: You still haven’t answered my question on how a consultant lands a job at ZABG?
SG: There was an elaborate process to identify members of the executive. A short list was done of experienced bankers and professionals. We wanted people with know-how of the financial sector and I am satisfied that the team we have is the best. The consultancy companies were brought on a short-term basis.
SM: There are allegations in the market that your 10 senior executives are paid between $130 million and $170 million in monthly salaries. How true are those allegations?
SG: That is not true. I am actually shocked that people are talking about those figures. Those allegations are pure lies and completely baseless. ZABG salaries were determined on the basis of a remuneration benchmark exercise done for similar jobs with other banking institutions. ZABG remuneration practice is to pay in line with the market.
SM: Talking about the management team, did you know that some of them have dubious reputations? Some of them were senior executives at the collapsed banks.
SG: A thorough check on their background was done. One of our key values in ZABG is good corporate governance, citizenship and compliance with all the laws of the country. In light of the explanation given above, it is clear that ZABG is in compliance with the Corporate Governance rules of the Reserve Bank.
SM: But we know of names of people who came from Trust, NDH and Barbican and they are holding management positions in ZABG, which is of course against the corporate governance guidelines published by the RBZ recently.
SG: I will not be drawn into mentioning names on this issue. But everyone employed by ZABG was interviewed according to normal channels.
SM: I think the guidelines insist on the people being cleared by the police and an independent process? Obviously the only ‘thorough check’ you are a talking about was an internal one.
SG: We have checked and we are satisfied that the team we have is the best. In all the cases we looked at experience. As long as we don’t have damaging information, we would employ that person. Even the RBZ was satisfied that the people were clean. SM: So you did not make an effort to check their reputation?
SG: We did, that we did.
SM: The workers say they have had their salaries cut. They also complain about nepotism in the bank.
SG: I have good relations with the workers. No employee has had their salaries cut. I have personally visited the branches around town and the workers are happy. Be reminded though that we are trying to integrate workers from different institutions. SM: How about those who have had their vehicles taken away?
SG: Well, that was an issue of grading. ZABG has a different grading system
from the collapsed banks. So you find that a person who was entitled to a car at Trust might not have the same benefit at ZABG. ZABG has its own conditions of service.
SM: As we speak now there is a pending Supreme Court judgement, which if you lose might mean the collapse of the bank. Do you have a ‘Plan B’ assuming that you lose the case?
SG: That’s an issue for the court and I think it would be sub-judice to discuss that now.
SM: But we are not talking about the court ruling but your plan.
SG: Still I believe it would be improper to discuss the issue now. Remember the courts have not delivered a judgement yet. Let’s leave it for now.
SM: But experts say if you had followed the Troubled Financial Institutions (Resolution) Act there wouldn’t be these problems.SG: We have followed the Banking Act. We are a registered bank just like any other bank.
SM: Talking about you sir, are you independent from the RBZ. We hear you
refer to the governor on almost everything.
SG: There is a clear distinction between the RBZ and the bank. They are the supervisors of the industry in which we are a player. Beyond that, there is nothing else. We take instructions from them on a matter of policy just like any other bank in the country.
SM: People say you failed to resuscitate Trust Bank when you were seconded to the bank. What guarantee is there that you can make it at ZABG, an even bigger bank facing almost the same challenges?
SG: I have a strong banking background. I do believe I can make this a viable group. As for the Trust issue, well, the situation was beyond repair. Trust was in a bad shape and there was little we could do to save the bank. It was a serious crisis. But I have a strong background in the industry. I was part of the team that made the supervision and surveillance division of the RBZ. I have also worked on many projects.
SM: So you failed?
SG: No it was a difficult situation.
SM: And were you retrenched from RBZ?
SG: I was appointed project manager for the formation of ZABG straight from RBZ.
SM: Finally, what is the ZABG vision?
SG: The ZABG vision is to be the power behind the recovery of the Zimbabwean economy by 2006. By that time we see ZABG as the ultimate home and driving force for all financial service requirements. ZABG has clarity in terms of the vision, mission and strategic issues to focus on. ZABG is blessed with a strong board and a highly skilled and professional management and staff. The institution is poised to rise to greater heights going forward.