Thursday, January 20, 2022

‘Kingdom Bank illiquid and insolvent’ – BoB

The inventory of assets of troubled Kingdom Bank, compiled by the Temporary Management team of Bank of Botswana (BoB) and submitted to the High Court, has confirmed that the bank is illiquid and insolvent.

This was revealed by Andrew Sesinyi-Head of Communications at BoB in an interview with Sunday Standard last week.

He explained that BoB assumed temporary management of KBAL, in accordance with Section 33 of the Banking Act (Cap 46:04), after concluding that the bank was in an unsound financial condition and that its board and management had failed to conduct the business in a prudent, safe and sustainable manner.

“The board and management of any bank has the responsibility to conduct the affairs of the bank in a prudent, safe, lawful and sustainable manner,” said Sesinyi.

Kingdom Bank, an offshore investment bank that also provides superlative trade finance and treasury services, was placed under temporary management by BoB on 16th February. The Reserve Bank exercised its powers in terms of Section 33 of the Banking Act which also empowers it to discontinue the operations of Kingdom Bank and stop or limit payment of the bank’s obligations.

The BoB also suspended withdrawals from deposit accounts held by Kingdom Bank, saying that would enable it to prepare an inventory of assets vested in, belonging to or held by Kingdom Bank. The Reserve Bank also informed depositors with Kingdom Bank that they may not transact upon their accounts while the temporary management process was underway. While it recognised the inconvenience caused to depositors, the Reserve Bank said it is necessary to follow the applicable banking laws, and further assured depositors that they will all be treated equally. However, those who owed Kingdom Bank were reminded of their obligation to repay their debt and of the bank’s right to demand full payment and take any appropriate further action, including foreclosure of collateral. The BoB explained in its statement that the temporary management process would not have any financial impact on the domestic banking industry as Kingdom Bank had no depositors resident in Botswana.

Sesinyi also explained that all loans must continue to be repaid and collected in accordance with the agreed terms as temporary management does not forgive debts.

“Eventually, proceeds generated by these loan collections and other assets that may be sold, are used to meet the claims of depositors and other creditors, in full or partially. The BoB will keep the interests of depositors as a top priority. Please note that statutory temporary management of a bank is undertaken to protect the interests of depositors and, more broadly, the safety and stability of the banking system,” he explained.

Kingdom Bank started experiencing problems back in 2012, when its subsidiary, Kingdom Finance, suffered financial losses and eventually closed shop. Kingdom Bank also suffered the same fate as crippling liquidity constraints rendered it unable to meet depositor obligations and operating costs. Insiders have revealed that the Reserve Bank has been keeping close tabs on Kingdom Bank, and expectations are that it will revoke the bank’s trading license and then proceed to liquidate the business.

Meanwhile Sesinyi has reassured Batswana that the collapse of Kingdom Bank was not indicative of any problems in the local banking industry.

He said the liquidity problems surrounding Kingdom Bank were totally unique and unrelated to the domestic banking system. He added that BoB has a robust regulatory and supervisory framework that requires all banks under its supervisory ambit to have effective risk management systems.

“It is the responsibility of the board and management of any bank to put in place effective risk management systems and adopt such risk management strategies to efficiently meet both expected and unexpected cash flows and other needs without adversely affecting their daily operations or the financial condition of the bank,” said Sesinyi.


Read this week's paper