RMB saga: Readers speak out

of affairs in the bank and put systems in place that would allow reopening of the bank to the public while it will remain under curatorship for six months.
The two weeks expire today.
It would be interesting to establish what the curator has unearthed so far in a case that has grabbed the most attention over the past few weeks.
Debate has continued to rage in the market pertaining to the latest saga and its bearing on the banking sector as a whole. Issues of good corporate governance have largely dominated discussions.
As I flipped through documents on this issue I came across a paper presented by Reserve Bank of Zimbabwe Governor Dr Gideon Gono on corporate governance which he presented at the Institute of Directors luncheon on February 19 2004 which I found to be instructive.
It stated corporate governance as defined by the Basel Committee on Banking Supervision as: “the manner in which the business and affairs of individual banking institutions are governed by their boards of directors and senior management; including the setting of corporate objectives and a bank’s risk profile; aligning corporate activities and behaviours to compliance with applicable laws and regulations while protecting the interests of depositors and other stakeholders”.
Corporate governance issues had become more topical during that period following the Latin American banking crises, the Russian financial crisis and the Asian crisis which caused damage to the global economy, largely triggered by poor corporate governance.
The Enron scandal in the US had also shown that poor practice undermined investor confidence and overall market stability.
Dr Gono then noted that most challenges banks were facing were attributable to poor corporate governance. He described it as the single major reason for bank failures and curatorships that Zimbabwe experienced in 2004.
Today, the same remains true as poor corporate governance has been highlighted as one of the major diseases that afflicted RMB.
What lessons should the banking sector and the economy at large draw from the RMB case? Has the banking sector adopted good corporate governance systems in all sincerity or there are so many illicit dealings behind the scenes?
Why would a bank such as RMB flout banking rules to that extent and can the rest of the sector be trusted with investors’ and depositors’ funds?
What stringent policies should be put in place to eradicate this menace?
All these questions may be answered over the days, weeks, and months to come as investigations unravel the goings on in the sector.
The central bank will certainly be expected to stamp its foot down and ensure the financial sector adheres to good corporate governance systems to the letter.
There seems to be much work for the apex bank as efforts to uproot malpractices intensify.
I received a lot of feedback from readers on the RMB saga. Below are some of the submissions:
Masimba Shumba, a Zimbabwean finance expert currently based in Zambia, had this to say:
“The Renaissance case raises a lot of issues with regards to:
“1. Central bank supervision – Where was the central bank when all this was happening?
“2. Anti-Money Laundering – How could a central bank accept capital contributions from a bank without checking the proof of the sources of funds? No wonder loan sharks were able to infiltrate, inasmuch as this does not seem to be the main cause of the crisis but I see it as a symptom of the crisis. Surely, at this rate drug dealers and terrorist organisations will soon be able to launder their money directly via our banks and the central bank as capital contribution.
“3. The independence, or lack thereof, of the bank’s auditors – who are the auditors and what were they saying about unauthorised advances as well as flagrant flouting of internal controls. Maybe one needs to check the size of the audit firm clients with relation to the size of the Renaissance portfolio. Was Renaissance or a combination of its sister companies the largest portfolio for the audit firm? If so, then there was a huge compromise.
“4. Did anyone from the central bank or bank auditors ever raise the issue of an overdrawn related party account for RFH? The normal trend is for shareholders to loan to the entity. When the entity now gives loans to the shareholders, then there is a potential problem. Shareholders in most businesses can do whatever they want, but when it comes to deposit taking financial institutions it becomes a different story, no wonder the need for the central bank to protect consumers, i.e. depositors.
“5. We might need to revisit the issue of bank ownership. Do we allow a trust to own a bank or a faceless nominee company to have shareholding in a bank.There is need to look at where the eventual control lies.
There is talk that the board must do certain approvals, but it’s a problem when the same board is appointed by the controlling shareholder who happens to be running the bank as CEO or whatever.
“6. When I looked at the borrowings from the other banks by Timba, it raises a question of the bank’s capital adequacy. Is the capital which banks have really there or it’s an old boys’ club lending to each other depositors funds to pledge them as capital? Are we not having a scenario where maybe Timba took the depositors’ money to TN and Kingdom, then went on to borrow from them in his “personal capacity”and pledged the money as capital to the central bank? Or it’s a merry go round, James’ bank loans to Peter to pledge capital, Peter’s bank loans to John to pledge as capital and John’s bank loans to James to pledge as capital. At the end there is just a circle of paper capital. Banks exposure to other banks shareholders needs to be looked at.
“7. With regard to Point 6 above one wonders with the current liquidity crunch, how the central bank would not raise an eyebrow when a huge loan in another bank is advanced to a major shareholder with a controlling stake and actually controlling another bank, wouldn’t this obviously raise a risk alert to a contagion effect in the banking sector?
“8. What are other banks’ exposure to RMB?
“I think this whole saga had a lot of tell-tale signs which the central bank could have picked up, that’s why at times people say the creation of composite financial institutions may have its benefits but mostly results in problems.
“With all due respect, Patterson Timba is a brain to reckon with and did wonders in creating his business from scratch, I have two friends who were with him when he started. They have great respect for the man as a thinker and a hard worker, I give him respect. The only problem is that we now need to look at more issues with regards to bank supervision. I think more emphasis should be placed on supervising bank operations, compliance with central bank requirements, capital adequacy, corporate governance, related party transactions and composite groups especially those with some operations falling outside the jurisdiction of the RBZ, co-operation with other authorities, e.g. the pensions supervisory authorities, the issue of bank auditors and their reports because I think bank auditors must go beyond assurance for shareholders, but for depositors as well as the regulatory authorities.”
Another player in the financial services sector wrote:
“Dear Victoria
The past few weeks have seen much of the business media preoccupied by the events that have unfolded at Renaissance Financial Holdings, the firm which was run by troubled banker Mr Patterson F. Timba. The events there have really shaken the financial services sector and the economy as a whole. I believe in life we are all human and make mistakes, but l believe as a country we need to start taking ourselves very seriously.
If we as a country cannot respect ourselves how then can we expect others to respect us? Countries like America and United Kingdom have experienced even more scandals but what has enabled them to recover and even grow beyond their limits is the issue that no one is above the law.
Many might not understand what I am trying to get at, but in a nutshell, I believe Mr Timba and his cronies who were involved in this sickening scandal need to have been behind bars by now. There is a notion that Africa is a dark continent and nothing good ever comes out of it.
But a close analysis of human behaviour will indicate to you that human beings, whether African or Asians, or Europeans are all the same, as Thomas Hobbes stated, “human beings are egocentric, selfish and greedy”. In essence, despite our cultural background we are all the same but what has made the West great and Asians great, is the simple fact that no one is above the law.
Beni Madoff, the famous rogue pyramid trader, misappropriated an estimate US$70 billion of investors funds and was made to account and go to jail for it. The famous French trader from Societal General was also found on the wrong side of the law, having misappropriated about 5 billion euros and was made to account for it before the law.
How do we expect to build strong Zimbabwean banking institutions when there is no accountability. What example are we giving to our children, when people steal openly and we glorify them instead of making them account for their sins? Minister Biti showed how biased he is because as the custodian of the financial services sector in Zimbabwe, he should have been calling for the arrest of Mr Timba and not trying to rescue someone who has misled the people that have put their trust in him by investing their pension earnings and funds in his bank.
Just have a look at most big banks in South Africa, many have become continental players having a strong presence on the continent and globally like Investec and Standard Bank. A close analysis will indicate to you that many of these banks are still very young banks but they have been able to grow because of stringent corporate governance rules which have created a lot of trust and market confidence.
By not bringing Mr Timba to justice, we are only shooting ourselves in the foot because deposits will run dry on many locally owned banks as many seek to safeguard their hard- earned income by placing them in the traditional foreign banks. IMF has on many occasions claimed that Zimbabwe is overbanked and should have seven banks, of which six are foreign owned.
How many of those foreign-owned banks have been supporting our local farmers and industry of late? What do you think would happen if that situation was to emerge? This country will be held to ransom and our industry and agricultural sector might never grow.
It is well known that all these sanctions have made accessing lines of credit very difficult. So if we were to follow the recommendations of the IMF will this economy rebound? I think the Ministry of Finance and Reserve Bank should be at the forefront of ensuring that Zimbabweans build strong and solid institutions which are Zimbabwean.
In principle there is nothing wrong in NSSA bailing out Mr Timba’s bank, because the Americans during the 2008 recession had to bail out many firms that were facing collapse in order to preserve jobs. But despite that I think Mr Timba’s banking career is over and shareholding should be transferred to institutions that deserve to handle people’s hard-earned money.
The law should have taken its course and by now Mr Timba should have been seeking bail. These are the actions which create strong market confidence and will ensure that as a country we can build our very own Zimbabwean brands that will make a global impact.
Thank you.
In God I Trust!
Let’s continue to debate on this subject.
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