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The culprits behind the collapse of banks

Doves Holdings is ordinarily supposed to limit itself to life assurance matters. More aptly, it must just care about the management of human deaths. But Doves has bought Amtec, an automotive entity, using policyholders’ money as part of its investment portfolio.

By Tawanda Majoni

Before you know it, policyholders will be crying foul because there won’t be any money to cover funerals adequately. Worse still, Doves may start downsizing and eventually die. This is predicable. Amtec, which Doves snatched from the Industrial Development Corporation the same way a vulture would snatch a carcass from a hyena, is a sinking ship. And it makes no sense to start rebuilding a sinking ship in the midst of Zimbabwe’s economic storm.

Your head will spin trying to unpack this weird decision. There doesn’t seem to be a sane explanation to the development other than that Doves wants corpses to be driving around town in the latest locally manufactured models. If that is the scheme, the cops have a good reason to fret because there is just no way they will be getting bribes from corpses. Dead people don’t keep money on them.

Something similar is happening at the National Social Security Authority (NSSA). The outfit is spending more time in boardroom meetings scheming how many millions must go towards insider loans for executives and gory investments than in providing social security.

This is no laughing matter. The culture of imprudence that Doves and NSSA have displayed serves as a colourful illustration of why Zimbabwe’s finances are in such a big mess. If you understand these entities’ madness, chances are high you will also appreciate why banks have been folding like wilting petals.

It’s all a matter of misplaced priorities, collusion, greed and impunity rolled into one — all the way from the banking institutions, through the Reserve Bank of Zimbabwe (RBZ) to key government departments and statutory agencies. NSSA and Doves are just two examples in the corporate world that seemed to have received working lessons from the banking sector on how best to do bad business.

A total of six banks closed shop in the last four years. That means more than one bank a year on average. These banks — Royal Bank, Trust Bank, Genesis, Allied Bank, Interfin and AfrAsia — were predominantly indigenously owned banks that are all at various stages of liquidation. There is something sinister about indigenous investors, but more about that later.

Around 55 000 depositors are struggling to get back their money. Some $186 million is locked up in the liquidated banks.

While, according to our laws, clients must get a maximum of $1 000 upon the closure of a bank, this has hardly happened. In fact, RBZ tells us that depositors have to date received a paltry $3 million. That is a miserable 1,6% of what is due to them! That is not surprising because the DPC has managed to recover only $29 million from the collapsed banks. It’s not clear, of course, why it has paid out only $3 million to depositors.

Chances are that the depositors will fail to get all their money and they will be wearing long faces to the grave. Pretty the same fate as that of thousands of other depositors who lost their money when the Zimdollar was abandoned or when RBZ raided foreign currency accounts. Invariably, the affected banks will be facing humongous liquidity and solvency problems. They would have been reduced to hollow shells by the time they are liquidated with executives having stripped them of almost all their assets, leaving the DPC and the depositors with little space for recourse.

This is where the big story lies. Why do the banks, RBZ, the Finance ministry and other relevant government, public investigative agencies, the DPC as well as the Bankers Association of Zimbabwe permit this to happen all the time? The answer is: flawed corporate governance, collusion, greed, indifference, misplaced priorities and brazen impunity.

First, a brief account of how the banks become insolvent. Corrupt greed, manifested through insider loans, is the major factor that has driven the banks to their knees and bellies. Just as in the case of NSSA, executives sate themselves with excessive loans. These loans are mostly for consumption, with the executives buying such things like fleets of luxury cars that they hardly have use for outside the bling.

You will remember how the likes of Nyasha Watyoka and Gilbert Muponda, the founders and directors at ENG Capital Asset Management, did just that up to 2003. They bought around 30 mostly German Porsche cars that, when matters came to a head at the financial institution, were found stashed away at Philip Chiyangwa’s house. The question that was on most lips was: “What do you need 30 cars for if you are not into buying and selling of cars?” Of course, that primitive appetite for luxury played a part in the collapse of ENG.

The major problem with these insider loans is that they are never productive. The executives get millions of dollars of depositors’ money that don’t accrue interest for the financial institution. That’s not all. Most of the beneficiaries of the loans have never bothered to pay back. Unless there is a huge fallout among the directors, the banks never take action to ensure that the money is recovered. What is particularly disturbing about these loans is that they border on corruption and immorality. The executives abuse their offices to doll out the mega-money loans.

On the other pole, lesser employees of the banks or financial institutions get small loans, if at all. They have to protect their jobs, so they keep their lips zipped up. Their salaries are usually pathetic and, finally, they lose their jobs when the institutions fold. Hundreds are now jobless because of elite greed at the banks.

The second major contributing factor is ill-advised investment. Doves, a funeral entity has bought an automotive outfit, but financial institutions have done pretty badly too. They have ventured into everything just short of grass-mowing. Brick-moulding, real estate, piggery, catering, you name it. The investments, needless to say, have nothing to do with their core business, which is accepting depositors’ money, lending it out for a profit and giving it back to its clients on demand, with prorated interest.

There seems to be something “genetic” about this. Indigenous investors have largely shown to be wild investors. They get into business with the wrong attitude. Burdened with the founder mentality typical of African investors, they believe that the banks and financial institutions must exist to satisfy their selfish appetites only. They forget where they get their money in the first instance and what keeps them going.

There is no wonder, therefore, that banks deteriorate to the extent of collapse. Directors at those institutions are simply a self-interested, self-destructive and dissident lot. It is clear that they could have avoided the collapse by exercising diligent and prudent corporate governance.

As a legal requirement and part of the banking culture, banks have internal audit systems, loss control structures and financial control units. These structures ought to tell them that they are headed for the cliff and must do something about it. But since the banks have collapsed anyway, there are three possibilities.

One, the units were not doing their work. Two, they were doing their work but did not bother to adopt appropriate actions to redress the situation. Finally, they did their work, adopted appropriate measures but top management turned a blind eye. The last possibility is the most real.

And since history has taught us that this is what native investors are like, external institutions that the law obligates to provide oversight and control roles must do better. Yet they don’t. The RBZ is a big culprit in this regard. As the central bank, it must always be in the loop about everything that happens at the banks and other financial institutions.

It has monitoring, surveillance, monetary analysis and investigative units whose primary role is to track the status of the banking system and facilitate better processes and systems. And this is happening as a daily routine.

Again, periodically, the central bank visits the banks for physical reconciliation of their processes and transactions. That must include assessments of the loans, internal or external, that the banks are giving out. In this sense, RBZ must pick the absurd loans that the executives give each other and take corrective action, for one.

It boggles the mind that a bank will come to the stage of insolvency without the apex bank doing anything. Basing on its own intelligence, it must be aware of the condition of the affected bank. But the fact that it does not do anything meaningful and the bank collapses sometimes hours after someone has just deposited several millions into it points to some collusion between RBZ employees and bank directors.

I don’t rule out the possibility of RBZ staff being bribed by the directors to look away. That would then mean that the central bank is part of a strong cartel collaborating in stealing from depositors.

The Finance ministry, which administers the RBZ Act and the Banking Act, must also shoulder the blame. Unless its officers are sleeping on duty, it must have sufficient intelligence about all the goings on in the financial sector. The same applies to the Office of the President and Cabinet and, where criminal activities occur as has been the case, the Zimbabwe Anti-Corruption Commission, police and central intelligence must be up to the task.

l Tawanda Majoni is the national co-ordinator at Information for Development Trust (IDT) and can be contacted on majonitt@gmail.com.

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