SME Bank closure ‘an unfortunate outcome’

Jul 17, 2017

By Tileni Mongudhi

WINDHOEK – Namibia’s Minister of Industrialisation, Trade and SME Development, Immanuel Ngatjizeko, has described the High Court’s decision to grant an interim order to shut down the country’s Small and Medium Enterprises Bank as “a very unfortunate outcome” but said government will not leave the country’s small businesses in limbo.

Ngatjizeko was talking to The Southern Times after the Bank of Namibia, the country’s central bank, successfully bid to get a High Court order placing the SME Bank under provisional liquidation for the next three months.

Immediately after the court order, the bank’s doors were shut, with the front door of its head office being visibly locked with a chain and a padlock.

Ngatjizeko was saddened by the fact that closing the bank would only harm those it was intended to serve, the country’s small business sector.  He said the situation was “unfortunate especially for the SMEs and the very marginalised businesses that will not have access to funding”.

The industrialisation minister vowed that government would not drop those whom the bank was established for to suffer and had no avenue to receive funding for their businesses. He said his ministry would ensure that new efforts would be undertaken for further discussions and talks to ensure that the closure of the bank was addressed to continue assisting the country’s marginalised businesses.

Ngatjizeko also hinted to possible talks with the Development Bank of Namibia to fully take over the function of SME funding.

Although the Bank of Namibia’s interventions was triggered by a N$175 million invested in South Africa, the central bank suspects the funds invested were lost, leaving the SME Bank unable to meet its commitments with its clients.

But court documents indicate that it had eventually become apparent to the Bank of Namibia that the bank was poorly run and that it failed to comply with the laws governing banks, which stipulate that it must have at least 10 percent of its liabilities in cash.

The central bank also stated that the SME Bank’s total liabilities were 14 percent higher than its total assets and that it was unable to pay its debts and give its clients their money back upon request.

The interim liquidation order comes at a time when the SME Bank’s directors and three top managers where challenging the central bank in court. They were challenging the legality of the central bank’s decision to remove them from their positions.

This process will have to be put on hold until the interim liquidation process is concluded in September, when the court will decide to make the liquidation order final or lift it. This will be done in accordance with the Companies Act. The aggrieved parties will also have the opportunity to present their case in September.

At the same time, the Namibian police is conducting criminal investigations into allegations of fraud against the failed bank’s board and management.

Ngatjizeko said his ministry would leave such investigations into the hands of the relevant law enforcement agencies.

“This is close to criminality and law enforcement agencies are well equipped to see who should be held accountable,” he told The Southern Times.   

Last week, trade unions, politicians and 200 SME Bank employees joined the call for government to intervene and rescue the failed bank. Government has not responded to such calls and even refused to heed a call by the Bank of Namibia for an over N$300 million bailout of the SME Bank.

But The Southern Times has learnt that government did not intervene because it wanted to disband the SME Bank in its current form and start a new venture or SME funding vehicle from scratch.

Government sources said that government was unhappy with the way the bank was set up and was also concerned about possible corruption by the industrialisation ministry officials involved in setting up the bank.

The Southern Times has also been informed that government was investigating the bank’s shareholding structure since the Namibian government is yet to be awarded its share certificate in the entity, nearly five years since it became operational. It is understood that apart from investing over N$450 million as owner’s equity, the Namibian government has no other way of proving that it really does hold a 65 percent stake in the bank.

The probe is also looking into why a section 21 company (not for profit company) with the name of Namibia Financing Trust is the owner of the building in which the SME Bank operates from. This entity allegedly has three trustees, two of whom are senior officials at the industrialisation ministry and the money used to purchase the building is government money. The plot thickens because the industrialisation ministry’s shares in the SME Bank were supposed to be held by another entity called the Namibia Financing Trust Pty Ltd. This is the entity that was legally supposed to hold government’s shares in the bank. The legality and purpose of the section 21 company, with the same name, is yet to be established.

The SME Bank was established in 2012 to be a collateral free bank for Namibia’s ailing and struggling small and medium businesses, who found it difficult to access funding from commercial banks in the country.

But about five years after opening its doors, the bank found itself on the wrong side of the law with the central bank. The central bank in March this year decided to take over the running of the bank by removing the bank’s management and board of directors, stating that they were not fit to run the affairs of the bank nor could they be trusted with clients’ money deposited into the bank.

SME Bank was created when the Namibian government entered into partnership with Metropolitan Bank of Zimbabwe (MetBank) and Zimbabwean businessman Enoch Kamushinda’s World Eagle Properties. The two had a 30 percent and five percent stake in the bank respectively while the Namibian government owned 65 percent.

The government, through the industrialisation ministry decided to use money it had kept for SME development and funding to create the bank. The money was held under the small business credit guarantee scheme, which was created to act as surety for small business when getting loans from commercial banks in the country.

Although it started off on the back foot, government asked all state owned entities to make use of the bank and help shore it up with deposits. Ironically, one of the first entities to heed this call, the National Energy Fund, with a deposit of over N$70 million in 2013, is now unable to get its N$400 million back from the SME Bank. Other state owned companies also deposited money amounting to about N$1 billion into the bank.

The troubled bank has, however, been subject of newspaper headlines since inception. The headlines ranged from non compliance with the banking laws, questionable allocations of loans and also non compliance with the country’s immigration laws.

Bank of Namibia spokesperson Kazembire Zemburuka referred questions regarding the liquidation of the SME Bank to the liquidators who could not be reached for comment at the time of going to press.

One Response

  1. I dont see where the bank really failed, the fact dat all financial dealings where accounted makes it a matter of one’s interpretations over da allegations. Given a young bank in a young economy Bank of Namibia was supposed to restructure da bank instead of running to seek provisional orders to close it.

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