Business

Kingdom Bank in doldrums

Under pressure: The bank of Botswana might be forced to act after KBAL refused to surrender its banking license
 
Under pressure: The bank of Botswana might be forced to act after KBAL refused to surrender its banking license

Industry sources told BusinessWeek that the offshore bank, which is 100 percent owned by Zimbabwean banker Nigel Chanakira, is failing to pay back some of the depositor funds as most of its assets were tied-up in illiquid assets and advances to customers, whose recoverability is not guaranteed.

The bank’s 20 workers have also not received regular salaries since November last year, as the bank is surviving on a hand-to-mouth basis. Since it is an offshore bank, KBAL depositors and debtors are all foreign based, predominantly in Zimbabwe.

“A few depositors have already contacted the Bank of Botswana (BoB) after KBAL failed to pay them back their monies,” said a source.

“We understand the bank has no working capital and has to rely on collections from debtors to pay back depositors and salaries.”

 According to the banking insiders both in Botswana and Zimbabwe, KBAL liquidity and possibly solvency matters largely stem from a shareholder dispute at its parent company in Harare, which resulted in the offshore bank losing  $17 million (P161 million) in near-cash financial instruments invested in the Zimbabwean parent company.

KBAL was registered in Botswana in 2003 with the Chanakira-founded Kingdom Bank Zimbabwe (KBZ), as its parent company and technical partner.

KBZ would later enter a partnership with Mauritius based, Afrasia, but the business later ran into financial difficulties resulting in a separation between Chanakira and Afrasia.

The $17 million investment made by KBAL in KBZ could not be retrieved however due to liquidity constraints in Zimbabwe, resulting in the shareholders agreeing to swap assets.

Chanakira was thus bought out of KBZ through 100 percent ownership in KBAL as well as some telecommucations equipment owned by the banking group. The equipment now constitutes half of KBAL’s balance sheet, but cannot be liquidated to meet depositors’ obligations, worsening the bank’s liquidity position.

In an interview with Business Week, acting Managing Director of KBAL, Peter Mukunga conceded that the bank was currently experiencing working capital constraints and all efforts are being made to recapitalise the bank. “Business is challenging at the moment.  We are working round the clock to try and resolver the liquidity challenges we are facing and get back on out feet as soon as possible,” he said.

While Mukunga was optimistic of the chances to recapitalise the bank, insiders down played such a likelihood speculating that the Central Bank will soon take over management of the offshore bank. Management of KBAL is reported to have, twice in the past three months, resisted suggestion by the Central   Bank for them to voluntarily surrender their banking licence.

“ First KBAL were given a deadline of December, 31, 2014 to have surrendered their licence which was later extended to January, 31, 2015. The central bank will likely put KBAL under temporary management before they cancel their licence and then liquidate the business as they are now not only worried about the liquidity but the bank’s solvency as well. The central bank has also been worried about the unwelcome reputation it would bring to the Botswana financial sector if KBAL failed,” added another insider.

It is understood that KBAL has a $20 million (P190 million) balance sheet, which is mostly constituted by $17 million (P161 million in depositor funds on the liability side.

 On the asset side, KBAL’s has $10 million (P95 million) in the telecommucations equipment whose full value might be difficult to realise as well an equally risky $8 million in advances to its customers in Zimbabwe. 

In what might come as a test to the Central Bank’s regulatory framework for offshore banks, is the dilemma of whose responsibility it is to pay off the depositors if the bank is liquidated. “If the central bank decides to close down the bank, will they take over the responsibility of paying the depositors and in that scenario, how much authority and ability do they have to liquidate assets that are offshore?” said an executive within the local banking industry who declined to be named.

BoB Head of Communications, Andrew Sesinyi said KBAL was still a licensed offshore bank, but he could not provide further details. KBAL was registered in 2003 as an offshore bank under the then International Financial Services (IFSC).

As an offshore bank under IFSC, KBAL’s clients benefit from tax-free, multi-currency offshore banking services.