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Looting spree at Interfin Bank unearthed

By Chris Muronzi/Clive Mphambela

An official investigation into the operations of Interfin Banking Corporation (IBC) unearthed wholesale looting that left the bank reeling from non-performing insider loans of US$60 million, poor corporate governance and general abuse of depositors’ funds by the bank’s shareholders and individuals linked to them.

One of the bank's founders Farai Rwodzi
One of the bank’s founders Farai Rwodzi

According to sources close to investigations into the affairs of the bank, now technically insolvent, major shareholders who included the bank’s founders Farai Rwodzi, Timothy Chiganze and Jerry Tsodzai, as well as their cahoots, siphoned depositor funds by granting themselves loans to the tune of more than US$60 million which were not being repaid.

The bank had a concentrated shareholding structure in which founders Rwodzi, Chiganze and Tsodzai owned a combined stake of 54,21% through various investment vehicles. Rwodzi and Chiganze chair the boards of Interfin Financial Services (IFS) and the bank, respectively.

According to sources, problems at the bank arose primarily because the boards of the parent company, Interfin Holdings Ltd and the subsidiary bank were compromised by the presence of these controlling shareholders on both boards. This severely limited the board’s independence and compromised their oversight and that of management.

The sources told the Independent this week as a result the bank was technically insolvent, with a negative core capital of US$92,9 million as at June 8 2012. Insider loans amounted to US$59,914 million, while the bank had deliberately understated its bad loan provisions by more than US$44,342 million. These “prudential adjustments” left the bank’s core capital at minus US$92,9 million.

A recent four-day investigation by the central bank’s licensing, supervision and surveillance units established that while Interfin Banking Corporation reported insider loans of only US$2,9 million as at December 31, 2011 , the investigation reportedly determined the bank had understated the level of insider loans which were non-performing.

The position had further deteriorated and as at March 31 the institution had negative core capital of US$49,32 million, stemming largely from insider loans of US$63,29 million. “This means that the bank was involved in creative accounting, designed for the sole purpose of concealing the level of insider and non-performing loans”, the sources said, adding that the bank’s management and board had not proffered a satisfactory explanation for the alarming rise in insider loans.

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As the bank now has a capital deficit of US$92,9 million, and given the minimum capital requirement of US$12,5 million for commercial banks, Interfin’s shareholders or prospective investors would need to invest around US$105,4 million just to comply with minimal capitalisation requirements and capital adequacy ratios.

The investigation also established that Interfin Bank had a negative liquidity gap of US$86,49 million in the critical zero to seven days time band. This means the bank was unable to meet withdrawals from clients and to make payments on their behalf, or meet its own administrative obligations.

Owing to its failure to refinance maturing liabilities, Interfin had accumulated outstanding payments of US$12 million in unpaid RTGS transfers, US$22 million in fixed deposit maturities not honoured and US$2,2 million in bank drafts it was failing to clear, rendering the bank technically insolvent.

The sources said apart from abusing depositors’ funds through exposing Interfin to non-performing insider loans, the investigations also established the bank had, in the past five months, been paying expenses for an associate company, Interfin Management Services (IMS), to the tune of US$172 500. The expenses had been accounted for as fees in the bank’s book, the sources said.

The probe found Rwodzi had illegally and irregularly pledged his bank shares as security for a US$3 million loan from Al Shams Global, an outfit represented by businessman Jayesh Shah. It was this loan which Rwodzi used to acquire CFX Bank and was repayable over two years.

Al Shams is now said to be claiming US$3,679 million or 41% of Interfin. This transaction, which had the potential to alter the bank’s shareholding, was neither disclosed nor approved by the authorities.

The Independent’s own investigations established that Rwodzi had since February been under pressure to surrender share certificates to Shah. According to sources, Shah wrote several e-mails to Interfin’s company secretary demanding the share certificates.

The bank’s management and board was found to have presided over gross violations of prudential lending limits, with sources saying exposures to insiders were well above the 25% regulatory threshold. For instance, the bank’s exposure to Interfin Nominees was 125,5%, StarAfrica was 88,29% and ZimAlloys stood at 136,88%, the sources said. These are all entities in which Rwodzi had major interests.

Interfin Nominees, an investment vehicle for Interfin Holdings, was owed a total US$14, 214 million which was advanced to fund the underwriting of the Star Africa and Art Corporation Rights Issues. This loan was not performing and the facility had expired in January 2012 but not repaid.

IBC told the central bank the shares acquired through the underwriting transactions had since been pledged to various institutions to secure deposits. (In most cases, proper procedures were not followed in the granting of these loans).

Liquidity and Solvency Status

Interfin was technically insolvent with a negative core capital of US$92,9 million as at June 8, 2012. No explanation was given for the huge increase in insider loans, which amounted to US$63,29 million at March 31, 2012 and were reported as US$2,9 million at December 31, 2012.

The bank had a negative liquidity gap of US$86,49 million and outstanding payments of US$36,5 million. The bank’s shareholders are required to inject US$105,4 million for the bank to comply with prescribed minimum capital requirements. Zimbabwe Independent