9 June 2011

Zimbabwe: Bank Looted to a Shell

FRESH details about how ReNaissance Financial Holdings Ltd (RFHL) CEO Patterson Timba and other company shareholders and directors, working in cahoots with a pliant management, plundered ReNaissance Merchant Bank (RMB) have emerged as pressure mounts on authorities to recover the looted depositors' funds and bring the culprits to book.

Latest information on Timba and his collaborators' looting spree at RMB - which is technically insolvent and has been put under curatorship - are contained in a Reserve Bank of Zimbabwe (RBZ) report on RMB which exposed probably the biggest pillaging scandal yet within the banking sector.

Timba and his associates, chief amongst them Group Executive Director - Business Development Dunmore Kundishora, bulldozed RMB to dish out money like confetti to themselves and their relatives. Timba's relatives who got money from RMB included his father, brothers, in-laws and other cronies. The monies were usually given out or siphoned without board or other necessary approval.

"The level of insider and related party exposures of $12 594 403 is excessively high and constitutes 24% of total loans whilst the non-performing insider loans account for 21% of the total loan book. The proportion of performing insider loans to total loan book was 2,2%," the RBZ report says.

$55 504,31, Stephenson Timba, Patterson's brother, who accessed $376 011,10 through Fresco Packaging, $105 326,48 through Comrel Trading and $82 827,65 via Wovenville Enterprises.

Timba's cousins got $70 451,88 through Malfroy Investments and his in-laws got $170 452,87 via CCG Investments. Timba himself on one occasion got $54 783,32 through his company Tolrose Investments. Timba's family-owned Bethel Finance Ltd got $65 250,77 at one time. Munotidaishe Farm, owned by Bethel Trust whose beneficiaries are members of Timba's family, got $155 645,28. Covert Investigators in which another of Timba's brothers is a shareholder got $198 428,98.

Other companies which got such loans include the RFHL itself ($9 856 428,56), ReNaissance Securities ($315 221,11), Oxford Agrochemicals ($84 064,57), Excel Pharmacy ($47 290,36), ReNaissance Trading ($850 000) and First Mutual Life Assurance (R1 million).

"The group CEO, Mr PF Timba, in connivance the Executive Director at RFHL, Mr Dunmore Kundishora, siphoned depositors' funds under a well-orchestrated, intricate triangular methodology involving the following steps: transfer to counterparty, follow, ambush and withdraw," the RBZ report says.

"There is abundant evidence that Mr Timba put in place an elaborate scheme for siphoning interbank placements made by RMB via approaching the respective counter-parties and borrowing on behalf of RFHL, Bethel Trust and/or himself equivalent amounts which were linked to the placements. The transactions involving the siphoning of depositors' funds were done at counterparty level in a thinly-veiled attempt to conceal the fraudulent abuse of depositors' funds. Transactions involving Kingdom Bank, TN Bank and Metropolitan graphically illustrate this phenomenon."

The report says Timba's action bordered on serious criminality and fraud. This has provoked calls for Timba to be forced to return the money he raided from the bank and for the law to be allowed to take its course for all the culprits.

"The bank designed an intricate web of toxic combination of insider loans, inappropriate withdrawals from unfunded accounts, imprudent credit risk management and gross abuse of office to siphon depositors' funds," the RBZ report says.

The report, under the section intra-group indebtedness and undesirable methods of conducting business, says the RMB looting was on a "Nick Leeson-type" scale that left the bank bleeding.

Leeson is a former derivatives broker whose fraudulent, unauthorised speculative trading and other financial engineering activities caused the collapse Barings Bank, the United Kingdom's oldest investment bank, for which he was sent to prison.

"The investigation determined that a significant non-performing related party exposure to RFHL of $9 856 428,56 constituting 18,6% of the total loan book was conveniently camouflaged as a 'dealing limit'. In addition, a loan to ReNaissance Securities of $315 221 was also disguised as dealing transactions since 2009. The RFHL increased drastically to $9,8 million against an expired limit of $750 000. There was no board approval for all the subsequent draw downs after the expiry of the sanctioned limit.

"Non-performing insider and related party exposures were endemic at the institution. Such self-dealing is symptomatic of banks in distress. The investigation determined a very high level of non-performing loans of 38% of the total loan book of $53 097 759,83 as at 31 March 2001," the report says.

The RBZ report says the way Timba, Kundishora and others looted RMB would reduce the Nick Leeson scandal to "kindergarten stuff".

Timba, who ran into problems after borrowing US$5 million from local tycoon Jayesh Shah which he struggled to repay, and Group Executive Director, Business Development Dunmore Kundishora were the ringleaders in the whole saga. The two have between them direct and indirect shareholdings of up to 68,9% in the group. If the 9,13% of Clementine Sibve, another main shareholder, in RFHL, is taken into account, the effective shareholding of the three founding directors shoots up to 78,03%, an unlawful arrangement in terms of the law.

RMB, whose closure has shaken the market in which several other small and vulnerable banks are struggling, is wholly owned by RFHL which also controls ReNaissance Securities Ltd and ReNaissance Capital Ltd in Uganda. In addition, ReNaissance Financial Holdings Ltd owns 30,89% of Africa ReNaissance Corporation.

The bank was technically insolvent with negative capital of US$16,7 million as at April 30 against a prescribed minimum capital requirement of US$10 million for merchant banks. Given the capital deficit, the bank required US$32,6 million to comply with regulatory capital requirements.

The capital position is projected to worsen to minus US$39,2 million if the contingent liabilities on account of RFHL amounting to US$22,6 million are factored into the above position of minus US$16,7 million. Accordingly, the bank will require approximately US$55,1 million to comply with regulatory capital requirements. Banks are expected to meet their capital requirements by June 30.

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