/ 22 February 2013

Scramble to rescue Zim bank

Tall order: Government's bid to rescue the insolvent Interfin is a monumental task as the bank would need to comply with new capital requirements.
Tall order: Government's bid to rescue the insolvent Interfin is a monumental task as the bank would need to comply with new capital requirements.

The Zimbabwean government is exploring ways to rescue insolvent Interfin Banking Corporation because it wants to recover nearly $50-million the bank owes it and the African Export Import Bank (Afreximbank) before it was placed under curatorship last year.

An official at the ministry of finance said the Reserve Bank of Zimbabwe (RBZ) had been asked to ensure recovery of Afreximbank money extended to Interfin by the government for on-lending to struggling manufacturing companies under the $70-million Zimbabwe Economic Trade Revival Facility.

Interfin Bank was the administrative agent for the facility, which involved 11 other commercial banks as distribution agents, with the government acting for Afreximbank.

For Interfin to reopen its doors it would need to comply with a new phased capital threshold of $50-million by June this year and $75-million by December.

Depleted capital
When Interfin hit a crisis last year, commercial bank capital levels were pegged at $12.5-million, but the bank’s capital levels had been depleted to less than $1-million. Before being placed under curatorship, Interfin was failing to honour its interbank maturities and it had put limits on the amounts its customers could withdraw owing to liquidity problems and alleged mismanagement.

 “We are likely to see the bank’s revival,” a banking sector source familiar with the developments around Interfin said. He indicated that the curator could come up with a proposal to convert depositors’ money into Interfin shares. But still, he said, there would be a need to recapitalise the bank by a threshold of $25-million.

A significant number of assets owned by Interfin, including shares  in listed and unlisted companies, could be sold to inject cash into the ailing bank, he said.

The bank, which owed depositors nearly $100-million when it closed, also holds an undisclosed sum from a compulsory pension scheme, the National Social Security Authority, with which it made several investment decisions that resulted in significant losses.

Banking industry sources said rescuing Interfin would be a “monumental task”, considering that its key shareholders were unlikely to raise enough funds for the new capital levels and are indeed already heavily indebted to the bank through what the central bank described as “a high level of non-performing insider and related party loans”.

Interfin shareholders include Farai Rwodzi, Timothy Chiganze and Jerry Tsodzai.

Bid to recover money
Briefing journalists in July, soon after Interfin had been placed under curatorship, Finance Minister Tendai Biti said that he had instructed RBZ governor Gideon Gono to ensure that the government recovered all the money it had extended to Interfin.

Gono told a bankers’ convention in July last year that there were plans to reopen Interfin.

He reiterated in his monetary policy statement last month that there was a “compelling need to en–able the Interfin curator to conclude potential recapitalisation deals and corporate governance issues at the bank” to enable it to reopen.

He did not divulge further details.

Interfin Bank was placed under curatorship in June last year after the central bank said it was inadequately capitalised, had abused corporate structures and was equally plagued by a high level of non-performing insider and related party loans, chronic liquidity and income- generation challenges, and violation of banking laws and regulations.

After its expiry, the curatorship was extended by six months to June 11 2013.

Compensation cap
An executive with a commercial bank exposed to Interfin said central bank officials had informed them that allowing Interfin to collapse through liquidation would raise very little to compensate creditors because its assets could be disposed of at lower values than market prices.

The Depositors Protection Board’s risk assessment and monitoring manager, Morris Murau, however, said late last year that Interfin had sufficient assets to cover repayments to depositors in the event that it was closed down.

The board can only compensate depositors up to $150 a depositor from its own resources in the event of a bank going insolvent.

Banking sources said it was unfair that Genesis Investment Bank and Royal Bank, which surrendered their banking licences in June and July respectively for failing to meet minimum capital requirements, undercapitalisation and a high level of non-performing loans were allowed to collapse because the government had no exposure in these two banks.

Depositors lost $1.6-million when Genesis closed and $5.6-million with the closure of Royal Bank.