I attended the Tetrad Investment Bank creditors’ meeting recently. It was a depressing and distressing occasion to hear the Provisional Judicial Manager’s (PJM) report and hear the responses by creditors, many who lost their life savings and are now too old to work.
Although there were issues when PJM and Tetrad executives differed on the accuracy of information presented, these faded into insignificance as the big picture of the report clearly showed that Tetrad has been in serious trouble for years and that irregular practices had been taking place for years. Although Tetrad executives were of the opinion that PJM had done much damage to Tetrad’s reputation and thus damaged the outcome of an investor deal in progress, I believe that the damage to Tetrad’s reputation began on the day depositors were unable to withdraw their cash. This was in the last quarter of 2013, long before Tetrad was put into provisional judicial management.
While the negative economic environment has clearly played a role in the bank’s failure, the main reason that I take from the report is that Tetrad’s irregular practices eventually caught up with it. A few highlights from the PJM’s report illustrate some of the irregularities:
lThe bank’s last signed audited accounts were in 2012. The 2013 and 2014 reports were published as audited financial statements, despite not having been signed off by the auditors and the audits not having been fully completed. The information in the reports can therefore not be said to be the final state of the accounts until the auditors’ sign off. To publish the accounts as if they were signed off is misleading.
lThe liquidity gap grew exponentially from $74 240 in 2010 to a whopping $45 569 609 in 2014. Thank goodness the bank was put into judicial management before the situation got any further out of hand. Sadly, however, it came way too late to prevent losses of depositors’ funds.
l40% of the loan book, or $25 million, is in loans not backed up with collateral, making the loans extremely difficult to recover in the event of default.
lThe Reserve Bank of Zimbabwe (RBZ) noted that Tetrad underreported its risk exposure by about $13 million in January 2015, a good chunk of which relates to director/staff loans and related party loans, according to the PJM’s report.
lLarge and unauthorised overdrafts.
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lCash recorded in the bank’s system cannot actually be located.
This is the way in which creditors’ life savings have been handled. I am yet to hear an apology from Tetrad’s board and executives for the loss of funds and the life-changing implications that this is and will have on the lives and health of creditors and their families.
Meanhile, Tetrad directors and staff have stopped repaying their personal loans.
Despite the grave problems Tetrad faces, I sincerely hope that the deal with the elusive investor happens and that government removes any obstacles that are currently holding up the deal so that creditors receive full repayment. For many creditors this is the second time around, as many people lost their pensions and savings when the local currency crashed due to economic mismanagement.
The meeting also raised issues about the role of RBZ. The serious irregularities at Tetrad highlighted in the PJM’s report have been going on for many years. RBZ website tells us that its role is to supervise banking institutions, foster stability and proper functioning of the financial sector, ensure the safety and soundness of the financial sector, promote public confidence in the financial sector, take prompt action against troubled financial institutions, promote sound governance and risk management practices, foster a culture of strict compliance with laws and policies.
Had these responsibilities been carried out, even if not at 100% levels, the loss of depositors’ funds could have been prevented. Where was RBZ when it was needed? This was what was asked at the creditors’ meeting. However, there was no one present from RBZ. They had apparently been requested to attend but it appears that they decided not to come. Maybe they were afraid of being “mauled” by angry creditors? Who knows what their reasons may have been, but I believe that this has seriously damaged RBZ’s public image, both locally and internationally. It will also no doubt contribute to a loss of confidence in the financial sector and affect investment inflows which, ironically, is what RBZ’s objectives seek to avoid.
However, we need look no further for the cause of our national liquidity problems and the high cost of finance than last week’s meeting. Reflect on this: If you were a foreign investor, would you invest in a country where the Central Bank is so clearly unable to fulfil its core role in protecting your money should you decide to invest in Zimbabwe?
And, in the event that something went wrong with the financial institution or organisation you were dealing with would RBZ take as much interest in your case as it appears to be doing with Tetrad creditors? And, if you were a local investor, what would you do? Probably the same as the Tetrad creditors said this week: “withdraw our funds as fast as we can”. With no inflows of finance from international and local investors, there are shortages, and as we know from the “bad days”, shortages mean higher prices. As a result, our finance costs about 10% more than in “safer” countries.
Personally, I believe throwing blame is a waste of time and energy. However, I do believe that facing up to reality is important, partly to stop deluding oneself that “all is well” when there are bumps under the carpet, but mostly because seeing things the way they actually are and taking responsibility for what has happened is the only way to dig yourself out of a mess. This is what I would like to see from Tetrad, RBZ and from all who hold government and private sector leadership positions in our country.
