Home » Industry » Bad Loan Book Sinks Tetrad

ALMOST the entire loan book of Tetrad Investment Bank comprise of non-performing loans with the significant portion constituting unsecured aances to related parties, according to findings by the bank’s provisional judicial manager.

Outlining reasons for the bank’s failure in his preliminary report, PJM Mr Winsely Militala said 99 percent of the loan book comprised of non-performing loans of which 40 percent were in the form of unsecured loans totalling $25,1 million.

“The bank, in view of the non-performing loans, is almost negligible. The costs-to-income ratio of 203 percent for the 13 months ended January 31 2015 is impossible to live with,” said Mr Militala while recommending the liquidation of the institution.

Tetrad was placed under provisional judicial management last month following the expiry of the scheme of arrangement which was meant to recapitalise the bank. The provisional order of the judicial management will expire in April this year.

Related party loan balances of $19 million accounted for 76 percent of the unsecured loan balance of $25 million as at end of year 2014, with no security to recover these balances.

The majority of the security held against the secured portion of the loan book has been used to further secure its own borrowings and customer investment deposits.

Mr Militala noted that under-provision for bad and doubtful debts were committed on several times when a less stringent classification criteria was adopted.

As at December 2012, for instance, the board risk compliance reported provisions of only $1,91 million against $3,59 million determined by Risk amp Compliance department.

Secondly, an inspection report by the RBZ revealed an under-provision of some $3,92 million, under-reporting on insider and related party loans of $22,25 million, non-suspended interest amounting to $0,29 million for the period ending February 2013.

Mr Militala said there were “overall weak” controls characterised by lack of effective oversight of business executive function. Normally the Board of Directors, Board Risk Committee and the Audit Committee, perform the central role in management oversight.

But in case of Tetrad, “the situation obtaining on the ground was a case of overbearing owner-managers calling all the operational shots, and by-passing control measures at times.

Two of the owner-managers sit on almost all board committees with most of the non-executive directors having resigned.”

He said the bank, which has a negative core capital of $38,2 million did also not comply with the laws and regulations with regards to producing reliable business and financial reports, transparency, timely and appropriate.

Source : The Herald