KPMG washes hands of Kingdom Bank�s demise
Staff Writer | Thursday October 5, 2017 19:30
The audit firm is being sued by the liquidator of Kingdom Bank on behalf of the depositors of the bank, which was closed by the Bank of Botswana (BoB) in 2015 after an audit uncovered $18.7 million (P200 million) mismatch between assets and liabilities.
In papers filed before Justice Godfrey Radijeng, the liquidator of Kingdom Bank, John Little is claiming $18.1 million from KPMG saying the auditors acted negligently by passing the bank as a solvent entity when it was long in the red.
According to the papers, Little claims that had KPMG conducted its audit without negligence, KBAL would have ceased trading as far back as 2010, a time the bank would have recovered sufficient assets to pay all its liabilities.
Little also claims in 2011, KBAL’s liabilities would have exceeded its assets by $4.38 million a figure that kept on rising to $7.4 million in 2012 and $8.03 million in 2013.
By the time the bank was liquidated in 2015, its liabilities exceeded assets by $18.59 million.
In response, KPMG say they were the auditors of KBAL upto the financial year ended December 31, 2013, and they signed the opinion on the Annual Financial Statements to December 31, 2013 in September 2014.
“As at 31 December 2013, KBAL was solvent and in our view had sufficient reserves to carry it through for at least 12 months whilst it undertook a restructuring process which included finding new investors for the Bank. The going concern issues and the required restructure were disclosed in the financial statements at 31 December 2013.
“The board of directors was not successful in procuring the additional investors and KBAL was placed into statutory management in February 2015 by Bank of Botswana,” says KPMG.
In the court papers, Little claims that KBAL’s liquidity and solvency matters stem from the $18 million in Negotiable Certificates of Deposits (NCDs) that the bank had invested in its holding company, Kingdom Bank Zimbabwe (KBZ).
KBAL, which was 100% owned by Zimbabwean businessman Nigel Chanakira, was registered in Botswana in 2003 with KBZ as its parent company and technical partner.
The $18 million investment made by KBAL in KBZ could not be retrieved due to liquidity constraints in Zimbabwe resulting in the bank losing depositors’ funds.
Little claims that KPMG should have factored for the material risk regarding the recoverability of the NCDs, whose value should have been impaired by no less than 50%.
During the early period of the liquidation process, the depositors, led by EBC Guernsey, took action against the BoB in its capacity as the Banking Regulator for the recovery of losses experienced by depositors.
That case is also still before the courts.
KBAL, which had no resident depositors based in Botswana, was last in 2015 placed under liquidation due to insolvency after an audit uncovered an $18.7 million (P200 million) mismatch between assets and liabilities.
Max Marinelli of Deloitte was then appointed liquidator the same month, but the liquidation process was derailed after creditors declined to give him autonomous authority to sell the assets of the defunct offshore bank.
Little then took over from Marinelli after the latter fell out with the creditors.