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Oliver Kazunga Senior Business Reporter
TETRAD Investment Bank provisional judicial manager Winsley Militala says one of the reasons behind the collapse of the institution was the issuance of unsecured loans amounting $25.1 million, which account for 40 percent of its entire loan book.
The Harare High Court placed the merchant bank under provisional judicial management in January this year noting its liabilities exceeded assets following cancellation of its operating licence by the Reserve Bank of Zimbabwe.
In a report dated March 10, 2015, a copy of which was leaked to Chronicle Business, Militala said due to undercapitalisation evidenced by negative core capital of $38.2 million, the bank’s financial position was inadequate to cover the risk to which it was exposed.
“As a consequence customers lost confidence in its (bank’s) continued solvency as well as its ability to protect depositors against loss of their deposits.
“The bank failed to adequately protect its assets, earning capacity and its reputation, as is evidenced by the high levels of non-performing loans.
“Best practice would have seen strong internal control system and appropriate corporate behaviour form the basis for effective, entrepreneurial and prudent management of the bank’s affairs,” he said.
“Instead, the following occurred; 99 percent of loan book now comprises non-performing loans, 40 percent of loan book comprises unsecured loans amounting to $25.1 million.”
It could not be established to whom these loans were issued.
“I note that related party loan balances ($19.1 million) account for 76 percent of the unsecured loan balance ($25.1 million) as at end of 2014, with no security to recover the balances.
“In addition to this, the majority of the security held against the secured portion of the loan book has been used by the bank to further secure its own borrowings and customer investment deposit,” said Militala.
Under-provision for bad and doubtful debts, he said, were noted several times when a less stringent classification criteria was adopted.
He said a case in point was in the Board Risk Compliance report as at December 31, 2012, when management reported provisions of only $1.91 million against $3.59 million determined by Risk and Compliance department.
“Secondly, an inspection report by RBZ revealed an under-provision of some $3.92 million, underreporting on insider and related party loans of $22.25 million, non-suspended interest amounting to $0.29 million for the period ending 28th February 2013,” said Militala.
He added Tetrad Bank’s failure was also compounded by an overall weak control environment characterised by lack of effective oversight of business executive functions.
Normally the board of directors, board risk committee and the audit committee, perform the central role in management oversight, he said.
“In the case of the bank, the situation obtaining on the ground was a case of overbearing owner-managers calling all the shots, and by-passing control measures at times. Two of the owner-managers sit on almost all board committees with most of the non-executive directors having resigned,” said Militala.
The bank, he went on, did not comply with the laws and regulations with regards to producing reliable business and financial reports, transparency, timely and appropriate disclosures of information.
He noted that the bank understated the exposure by some $12.9 million when it declared $19.1 million instead of the $32 million that became apparent.
Meanwhile, the Deputy Master of the High Court in Bulawayo approved claims amounting to $1.2 million by creditors and depositors against Tetrad Bank at the first meeting of account holders in the southern part of the country held in the city last week.
About 100 depositors and creditors lodged their claims with the Master of the High Court.
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