The High Court has granted an order for operations of troubled Kingdom Bank Africal Limited (KBAL) to be wound up after a forensic audit found the bank to be insolvent.
KBAL, which has no resident depositors based in Botswana, was placed under temporary management by Bank of Botswana (BoB) two months ago due to acute liquidity constraints that resulted in depositors failing to withdraw their monies while workers went unpaid for several months.
An inventory of the balance sheet complied by the temporay managers, Delloite Botswana, thereafter showed that KBAL liablities 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.
In a statemnet released yesterday, the central bank said that during the temporary management period, Deloitte found out 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 ultimately insolvency.
“KBAL had placed significant funds – at least 70 percent of its total assets – on deposit with a related bank in Zimbabwe, namely, Afrasia Bank Zimbabwe Limited. This bank also suffered liquidity problems and in February 2015 it surrendered its banking licence and was subsequently placed in provisional liquidation.
“These problems have negatively impacted on KBAL, the recoverability of its funds on deposit, its ability to continue as a going concern and its ability to meet its obligations to its depositors,” reads the statement.
The petition for the final winding-up of KBAL was brought before the High Court of Botswana on May 12, 2015, and an order was subsequently granted with Max Marinelli and Chris Bray appointed to act as joint liquidators.
An inventory of the bank’s assets released by the BoB shows that liabilities outweigh assets by as much as $16.7 million (P160 million) with an estimated minimum recovery rate of 12 percent on deposits.
KBAL depositors and debtors are predominantly in Zimbabwe where the bank originates.
According to the balance sheet compiled by Max Marinelli of Deloitte Botswana, KBAL has liabilities to the amount of $19.1 million with $18.6 million of the amount owed to depositors.On the other side of the balance sheet, the bank owns assets worth a mere $2.4 million with the bulk of that money in the form of advances to customers amounting to $1.8 million.
On the best case scenario, Marinelli estimates that the recovery rate can rise to 27% as the recoverability of the advances to customers and assets held offshore cannot be fully ascertained.
According to the banking insiders both in Botswana and Zimbabwe, KBAL liquidity and 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 holding company, Afrasia Bank Zimbabwe.
KBAL, which is 100 percent owned by Zimbabwean businessman Nigel Chanakira, was registered in Botswana in 2003 with Afrasia Bank Zimbabwe (then Kingdom Bank Zimbabwe), as its parent company and technical partner.
The $17 million investment made by KBAL in Afrasia Bank Zimbabwe could not be retrieved due to liquidity constraints in Zimbabwe, resulting in the shareholders agreeing to swap assets.
Chanakira was thus bought out of Afrasia Bank Zimbabwe through a 100 percent ownership in KBAL plus some telecommucations equipment owned by the Zimbabwean banking group. The equipment which KBAL estimates to be worth $10 million, has however been written down by Deloitte to zero value or $1 million in the best-case recoverability scenario. Deloitte also wrote down KBAL’s loans and advances to customers worth $11.6 million to $1.7 million due to recoverability uncertainties. “The actual value of KBAL assets can only be determined with any certainty when the transaction to realise them takes place, and accordingly a range of possible values is provided,” said Marinelli.