– Bank of Botswana failed to see the collapse of Kingdom Bank coming
– Bank of Botswana refused to have Kingdom Bank sold
– Creditors suing BoB for millions
– The Business Weekly & Review suing for access to court records
The true extent of the Bank of Botswana’s role in the financial turmoil of Kingdom Bank is only starting to take form. The Business Weekly & Review investigations have revealed a bank out of touch with the financial realities of the financial institutions it is supposed to supervise. The series of events leading up to, and after, the collapse of the ill-fated Kingdom Bank shows a lack of decisive action form the regulatory bank. It has become obvious that the Kingdom Bank, under a more rigorous regulatory regime would not be in the state it is in today. The Bank of Botswana ought to have foreseen, as the ultimate regulator of banks in Botswana the impending collapse. The Bank of Botswana Act, gives BoB the overall duty to promote liquidity and solvency in the financial system. The Act puts the primary objective of the Bank of Botswana as “first and foremost to promote and maintain monetary stability, an efficient payments mechanism and the liquidity, solvency and proper functioning of a soundly based monetary, credit and financial system in Botswana”.
The Bank of Botswana has the oversight mechanisms in respect of and authority over f all banks in Botswana to to safe guard their financial liquidity, therefore, insiders say, the that BoB would have known the true state of Kingdom Bank’s financial status. “The Bank of Botswana would have known exactly what the financial state of Kingdom Bank was approaching, as early 2013, and put in corrective measures (due to BoB placing it under management at the time)” says one financial expert who chose to remain anonymous for fear of victimisation.
According to insiders, Kingdom Bank was non complaint with its regulator as early as December 2013. The reporting systems of the BoB provided the warning signs as to Kingdom Banks lack of liquidity, however despite BoB placing Kingdom Bank under management, BoB failed to take decisive action to minimize or entirely negate creditor’s losses.
BoB’s failure to fulfil its Statutory duties did not only arise from its failing to ensure Kingdom Banks liquidity but importantly when faced with the non-compliance by Kingdom Bank it failed to properly oversee its administration. In August 2014 when it was evident that Kingdom Bank was lacked liquidity, two potential investors proposed to buy the beleaguered bank. Mauritian financiers Dolberg Capital and South African agricultural financier Afgri Ltd, made offers to purchase Kingdom Bank. The Bank of Botswana failed to act on both offers, notably at a time when such offers would have secured Kingdom Banks creditors and prevented the losses occasioned to both BoB and Kingdom Bank arising from its downward trend towards insolvency.
Sources say both suitors included in their offers, a guarantee for depositors’ funds, making it clear that they understood that Kingdom Bank was experiencing financial difficulties. “The Bank failed to prevent the insolvency of Kingdom Bank and the losses resulting from that, to the depositors” argues an insider.
Kingdom Bank, need not have been placed under liquidation given the offers to purchase it. Bank of Botswana had the regulatory oversight to put in place measures of control which would have sustained Kingdom Bank pending the finalization of the purchase and in so doing adhering to its obligations under the Act. Given that Kingdom Bank faltered and collapsed under the watch of Bank of Botswana, experts argue, the regulator should have taken the least painful direction to rescue it. Financial experts indicate that the refusal of the Bank of Botswana to grant potential investors opportunity to inject liquidity into Kingdom Bank constituted a potential failing by BoB in fulfilling its mandate. By the time, earlier this year, BoB put Kingdom Bank under judicial management, it marked the high point in the regulatory bank’s failures, financial insiders say as the offers to purchase were no longer available.
Kingdom Bank was placed under temporary management by Bank of Botswana (BoB) due to acute liquidity constraints that resulted in creditors being unable to access their funds and staff going unpaid for several months. An inventory of the balance sheet compiled by the temporary managers, Delloite Botswana, showed the bank’s liabilities outweighed its assets by approximately $17 million (P163 million), leading to the BoB, as the regulator, to petition the courts for an order to close down the offshore bank.
According to the daily Mmegi, in a statement released in March this year, the central bank said that during the temporary management period, Deloitte found that the asset base of the bank had been severely eroded due to a number of factors that gave rise to the liquidity problems and ultimate insolvency. The petition for the final winding-up of Kingdom Bank was brought before the High Court of Botswana on May 12, 2015, and an order was subsequently granted with Max Marinelli and Chris Bray being appointed to act as joint liquidators.
An inventory of the bank’s assets released by BoB showed that liabilities outweighed assets by as much as $16.7 million (P160 million) with an estimated minimum recovery rate of 12 percent on deposits.
The British financial services company EBC Guernsey was one of the holders of substantial deposits in Kingdom Bank and approached the High Court early this year, suing the Bank of Botswana over its failing to properly regulate Kingdom Bank which in turn caused EBC losses in the sum of P25 million.
Minchin and Kelly acting for EBC filed its law suit at the High Court where it was allocated to Justice Kebonang. However, the matter was not determined by the presiding Judge as due to the failure of the Bank of Botswana to respond to its claims in time; EBC was granted default judgment. The result was that the BoB faces the prospect of paying out around P25m to EBC.
Collins and Newman on behalf of BoB last week submitted papers in an urgent application to stay the execution and set aside the granting of the default judgment, and save, BoB, not just millions but, face. According to sources, EBC Guernsey, got default judgement on 15th July 2015. The implications for Bank of Botswana were that EBC could attach the bank’s property and recover its losses. However on Monday 28th and Tuesday the 29th Tafa’s team went to court to seek the High Court to set aside the default judgment. The matter is before the High Court.
Meanwhile last week the reporter investigating this matter approached the High Court seeking access to the court records on this case. A letter of demand was sent to the High Court last week Friday, giving court 24 hours, to release the records. Among the main arguments being raised by The Business Weekly & Review lawyers Bayford & Associates is that the courts, constitutionally are an open forum, and that as such court documents should be accessible to all member of the public, not least the Media. On Tuesday 4th August, having been refused access to the court records on this case, this publication The Business Weekly & Review has instructed its lawyers to lodge a case seeking access to the court records. The central tenet of the newspaper’s argument being that a matter involving BoB is of public interest and that the public has the right to receive information regarding public institutions; the media and for that matter any member of the public has the right to inspect court proceedings in an open society.