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How Royal collapsed in 2004

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Almost eight years after Royal Bank was placed under curatorship, its doors were again shut last week but whether this was for good still remains to be seen.

NewsDay today takes a look at how events unfolded before the bank was first closed in 2004.
Royal was placed under curatorship as a result of inadequate capital and severe liquidity problems.

According to submissions contained in the Reserve Bank of Zimbabwe Report on the Appeals Process of May 2006, at the time of the bank being placed under curatorship, it was discovered that Royal Bank was not in a sound financial condition.

In particular, the bank was facing serious liquidity and solvency problems that were attributed to poor corporate governance practices.

The central bank said the liquidity and solvency problems started in December 2003, allegedly due to poor management policies and practices, poor risk management, imprudent lending practices, including lending to insiders beyond healthy and prescribed thresholds.

Executive directors Jeffery Mzwimbi and Durajadi Simba were also accused of fraudulent and negligent activities.

Significant amounts of local currency were said to have been siphoned from the bank by the executive directors.

To cover up transactions, the RBZ said, fictitious incomes (interest) were credited in the financial statements.

The decision to place the bank under curatorship was done as a last resort. It was not challenged by anyone.

The bank’s curator Robert McIndoe filed a submission that he conducted a thorough investigation into the affairs of the bank and came to the conclusion that it was hopelessly insolvent.

It was established, according to the report, that when the minimum capital requirements of commercial banks was increased by the RBZ, Royal Bank illegally gave financial assistance in the sum of $480 million to its shareholders/directors for the purchase of its own shares.

Directors also carried on the business of the bank recklessly, with gross negligence and intent to defraud depositors, the report said.

The directors were found to be in gross disregard for various statutes and regulations and for the Bank’s Credit Risk Policy and Credit Risk Manual and did not adhere to sound corporate governance principles.

“They claimed to observe the Code of Best Practice as recommended by the Cadbury and King Reports, but failed dismally to do so; the structures at the bank fell far short of the targets; the directors sought to advance their personal interests ahead of those of the bank, the directors did not adhere to proper risk management principles and certain officers and directors showed complete disregard for the requirements of the exchange control regulations,” reads part of the report.

It was also established the directors bought foreign currency outside the country and paid for it within Zimbabwe and they transferred currency outside the country without obtaining exchange control approval.

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