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anything to do with the bank, has seen top shareholders of its holding company borrow millions of dollars of depositors’ funds in breach of ba-nking regulations, driving the bank into negative equity.
Central to the outflow of cash to top sha-reholders was Mr Patterson Timba, the lar-gest shareholder and effective controlling shareholder in Renaissance Financial Hol-dings, which owns 100 percent of Renaissance Merchant Bank.
Mr Timba has 44,7 percent shareholding in RFHL through Bethel Trust and other vehicles while his then fellow top executive, Mr Dunmore Kundishora, held an effective 24,2 percent stake.
The two thus held almost 69 percent be-tween them, allowing them to dominate the ownership.
Investigations by the Reserve Bank of Zimbabwe found the two borrowed milli-ons of dollars through loan schemes that had not been sanctioned by the systems the bank is supposed to use.
The unsanctioned loans taken by the di-rectors left the bank with a capital deficit of US$16,6 million and in need of a capital injection of US$31 million to restore the ca-pital base to the required levels.
The central bank probe, it is understood, found that besides taking the lion’s share of the bank’s loans, Mr Timba would compromise the bank’s liquidity through obtaining loans or funds from other financial institutions on the back of money market deposits placed by RMB.
The RBZ report revealed that Mr Timba and Mr Kundishora created insider borrowing facilities using an unfunded RFHL call account held at RMB whose limit of US$750 000 had expired.
Total insider borrowings by Mr Timba and his relatives amounted to US$12,4 million.
The borrowings included exposures to RFHL and exceeded 25 percent of the bank’s capital base.
This violated Section 16 (2) (b) of the banking regulations, which stipulates that advances given to insiders and relatives should not exceed 5 percent of the bank’s capital base.
The RBZ investigations also uncovered instances where Mr Timba, in his personal capacity, allegedly removed funds for personal use that had been negotiated and received by the merchant bank.
“There was total collapse on internal controls to the convenience of Mr Timba to necessitate fraudulent siphoning of depositors’ funds,” said the report.
“Instructions were being given verbally to divert depositors’ funds while unauthorised transactions were being processed with impunity.”
In April last year, the RFHL call account had an unauthorised overdrawn balance of US$9,8 million.
Among other purposes, the funds were used to pay for “loans obtained somewhere,” settle for expenses not related to RFHL and to sustain Mr Timba’s shareholding and that of his close associates.
For instance, Mr Timba upped his shareholding in RFHL through a rights issue in September 2009 using the personal loans.
Sometimes last year, RFHL withdrew US$1,07 million from the unfunded accou-nt.
The withdrawals were encashed by a senior manager. The cash was not signed for on the withdrawal slip as procedurally required to save as evidence of receipt.
From that amount, about US$750 000 was used to partly settle the financial group’s obligations to Mr M P. Belinskey.
Between January 14 and 31 this year, RFHL, using the unfunded account, made US$7,1 million payments to Al Shams (owned by businessman Jayesh Shah) to repay a loan of US$5 million and US$1,84 million borrowed by Mr Timba last year.
The US$5 million was borrowed to reca-pitalise the bank while the US$1,84 million was meant to artificially reduce the level of RFHL overdraft with the bank as at the end of last year so that the account would be credited for auditing and financial repor-ting purposes.
In addition, the group also borrowed US$1,1 million from Afre Corporation on December 28 last year, which was also deposited into the RFHL call account.
RFHL has 32 percent interest in Afre.
Afre was repaid between January and February 2 this year from the same call account.
The investigations further revealed that Mr Timba came up with a scheme to get hold of the funds made in inter-bank placements by RMB, by approaching the other parties and borrowing these same funds back on behalf of RFHL or Bethel, his own trust.
In April, RMB made a money market placement with TN Bank for US$2,1 million. Mr Timba through RFHL approached TN Bank and borrowed an equivalent amount on the same day. On maturity, RFHL could not repay and continued to debit the call account for the US$2,1 million.
On December 31 2010 RMB placed US$2 million with Kingdom Bank, as part of its normal market placements, which was scheduled to mature on March 31 this year. Kingdom then made a corresponding back to back deposit of US$2 million at RMB with a similar tenor. The proceeds of the back to back deposit into RMB were transferred to RFHL.
Upon maturity of these placements, RMB was not in a position to pay Kingdom as Mr Timba through RFHL allegedly diverted the proceeds from his bank’s money market placements.
In turn, RMB could not receive their placement of proceeds from the US$2 million placed with Kingdom, which had matured. They were subsequently rolled over to June 29 2011.
A similar scheme was seen at Metropolitan Bank, this time to benefit the Bethel Trust which is supposed to be run fro Mr Timba’s benefit. RMB deposited US$500 000 on March 31 for a period of 77 days. Mr Timba, through Bethel Trust, and without consent of his own trustees, borrowed the same amount.
The loan was secured by a guarantee from First Mutual Life. However, the validity of the guarantees was questionable, as it was not authorised.
The report also alleges that Mr Timba failed to return securities of Afre, which the firm had used to borrow US$4 million from Al Shams in 2009.
Afre borrowed funds through RMB and pledged securities in the form of Econet and RTG shares.
On maturity, Afre repaid the loan with interest amounting to US$1,3 million and Al Shams returned the securities. But it is alleged that Mr Timba directed that the securities should not be surrendered and instead they were used to borrow from other institutions.
In some cases, Mr Timba would, in connivance with the bank’s treasury department, give instructions to counter parties to deposit funds negotiated by the bank to credit RFHL.
For instance RMB negotiated for a money market placement of US$2 million with Econet.
Econet then requested the amount to be transferred from its account held at RMB to the money market. However, Mr Timba allegedly instructed for the money to be transferred to Mr Shah to clear his obligations. Mr Timba also instructed a transfer of US$1,12 million negotiated by RMB and Infinity Asset Management to be transferred to RFHL call account.
It was further noted that RFHL financed share buy backs through an overdrawn account.
For example, Renaissance Nominees paid for the former managing director Mr Belmont Ndebele’s shares in the bank, a total of US$1,15 million by debiting the RFHL call account.
The report alleges that Mr Timba and Mr Kundishora exercised excessive power over operations of RMB and in relation to intra-group and related party transactions.
“The investigations established that the duo effected payments on behalf of RFHL from perennially overdrawn account despite unreserved objections by authorising signatories, the managing director and the finance director,” said the report.
In a written submission to the central bank, the RMB finance director Mr D Hlatshwayo, said since the beginning of January, both him and the MD “refused to authorise future payment against” RFHL account.
“The payments are, however, being made as RFHL signatories still send payment instructions to Treasury Operation (back office). Back office then processes the transaction on the basis that RFHL has authorised it, which is something that the bank does not condone.”
Given the capital deficit of US$16,6 million, the bank requires US$26,6 million to meet minimum capital requirements for merchant banks.
The banks’ capital deficit could be further worsened if contingent liabilities amounting to US$39,2 million of RFHL and other parties were to be taken into account. This will imply that the bank requires at about US$55,1 million to meet minimum capital requirements. As at May 9, the bank had unsettled client payments amounting to US$11,1 million.
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