Could it have been a case of history repeating itself or a déjà vu that triggered the demise of Royal Bank?
Rewind . . . On August 4 2004, the bank was placed under curatorship after it emerged that an insolvency crisis, resulting from poor corporate governance, would lead to its collapse.
Nearly eight years later on July 27 2012, Royal Bank surrendered its operating licence after it became apparent that the commercial bank had failed to raise $12,5 million minimum paid-up capital prescribed by the Reserve Bank of Zimbabwe (RBZ).
This was despite initial indications that a foreign investor had been secured to shore up the undercapitalised institution.
Up until its closure last week, founder Jeffrey Mzwimbi had insisted everything was under control at the bank and there were foreign investors interested in bailing it out.
Prospects of reopening the bank will now become a herculean task for the bank’s shareholders following a proposed astronomical rise in minimum capital requirements, which now stand at $100 million.
“Unlike in the past there will be no one hour or one day extension to the deadline and we would like banks to come forward by end of September with their roadmap towards their compliance,” RBZ governor Gideon Gono said on Tuesday while announcing the new measures.
Has this brought to an end Mzwimbi’s dream of running a bank in a capital-starved economy? The central bank this week revealed that Royal Bank was abusing depositors’ funds to meet operating expenses in breach of banking regulations.
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Royal Bank, according to the central bank, was undercapitalised with a core capital of $1,85 million as at June 30 2012, an amount way below the minimum capital requirements.
“The closure of the bank was necessary in order to stop the institution’s heamorrhaging,” Gono said.
“In the absence of an immediate injection of capital and remedy of the serious corporate governance weaknesses, the continued operation of the bank would be detrimental to the financial system stability.”
The bank recorded a cumulative loss of $5,98 million as at June 2012. RBZ said a recent on-site examination by the apex bank determined the institution was not in a safe and sound financial position. So dire was the situation at the bank that the RBZ determined that 99,29% of the total loan book was non-performing.
“The huge and persistent losses are largely attributable to high operating costs and since relicensing, the bank has been using depositors’ funds to cover operating expenses,” Gono said. “Although the Zimbabwean authorities had approved acquisition of 62% stake in the bank by Commercial Bank of Africa (CBA) based in Kenya, the parties had failed to finalise implementation of the deal within the given time frames.
“The transfer of funds from CBA did not materialise and there were conflicting statements from the bank and CBA on when the deal would be consummated.”
In what could be the final nail in the coffin, the central bank chief announced tough conditions required in order to reopen the bank.
Gono said Royal could only reopen after securing enough capital. He also banished Mzwimbi and Royal co-founder Durajadi Simba from the bank’s executive team. “The chief executive officer and the executive director (Simba) must be never, ever be seen near Royal Bank again. That will be a condition to open the institution,” Gono said.
Royal was amalgamated to form ZABG alongside Trust, Royal and Barbican after it ran into problems in 2004. The three banks challenged the move saying the disposal of the assets to ZABG was improperly done. The three banks were relicenced in 2010 after RBZ demerged ZABG into Trust, Royal, Barbican and ZABG.
Contacted for comment Mzwimbi said: “Our Kenyan investors will be here on Monday to conclude the deal. So its too early for you to talk about closure.”
