BoN intensifies Trustco Bank liquidation plans

The Bank of Namibia (BoN) is applying for the liquidation of Trustco Bank, arguing that it does not have the requisite funds to operate as a commercial bank.

This according to an affidavit by central bank governor Johannes !Gawaxab, who said concerns include Trustco Bank's inability to operate as a going concern over fears that it failed to generate loans to third parties, Trustco Group’s failure to recapitalise the bank to the tune of N$100 million and the inability of the bank to honour its existing loan obligations.

“Trustco Group was directed to recapitalise Trustco Bank in an amount of N$100 million, in the form of cash in three equal tranches over a three-year period. This was to ensure ample liquidity to meet funding obligations as they fell due and capital adequacy required to continue as a going concern,” !Gawaxab said.

While an initial transfer had been made, this money was redirected back to the Trustco Group, defeating the objectives of the recapitalisation, he added.

Flow of funds questionable

“This flow of funds back to Trustco Group defeated the purpose of the recapitalisation of Trustco Bank to ensure sufficient liquidity and capital adequacy, resulting in Trustco Bank not complying with the prescribed minimum liquid asset requirement of N$13 million or 36% of total funding liabilities with the public, whichever was higher,” he said.

Trustco Group had also failed to make an additional recapitalisation, further eroding the central bank’s trust.

“The second tranche of N$33.3 million was due on 31 March, but Trustco Bank simply failed to comply with the directive on or before 14 April,” !Gawaxab said.

Trustco Bank’s former auditors, Grand Namibia, also pointed out concerns over its ability to operate to the BoN.

“On 27 July, Grand Namibia brought to the attention of the bank’s banking supervision department that they had concerns regarding the banking institution's ability to continue as a going concern. The auditors disclosed, in terms of Section 45 of the Banking Act, that Trustco Bank might be in breach of Section 28(1) of the Banking Act, thus constituting a material irregularity,” the governor said.

Minimum requirements not being met

“Trustco Bank’s then auditors indicated to the banking supervision department that Trustco Bank had ceased to extend credit during 2021 and from that date had only engaged in the collection of loans. This meant that the core banking activity for which the licence was granted to Trustco Bank had ceased,” he said.

“The auditors recorded that they believed that a reportable irregularity had taken place at Trustco Bank relating to the bank’s ability to comply with the Banking Act's minimum capital requirements and its ability to act as a going concern.

"The auditors further recorded that they believed that the irregularity might cause - or was likely to cause - financial loss to the entity, shareholders, creditors or investors of the entity in their dealings with the entity,” he added.

The auditors also pointed out that Trustco Bank’s management had failed to provide any evidence that it had addressed the shortcomings identified, !Gawaxab said.

Bank unable to meet obligations

The central bank said Trustco Bank is unable to honour its obligations to the Namibia Revenue Agency (NamRA) and the Development Bank of Namibia (DBN).

“Trustco Banks conduct in failing to pay its taxes when due, and its further failure to service its DBN loan facility, demonstrated the bank’s heightened liquidity challenges. In fact, Trustco Bank’s inability to honour its obligations as they fell due was rooted in its inability to meet the bank’s prescribed liquid asset ratio,” !Gawaxab said.

He urged that steps be taken to protect the funds of depositors in Trustco Bank.

“Given the financial position that Trustco Bank finds itself in, especially the debt owed to NamRA and the DBN in the amount of N$23.4 million, the imminent initiation of legal proceedings cannot be excluded," he said.