RBM to pay ‘dead’ bank billions

Taxpayers risk a further burden as the Reserve Bank of Malawi (RBM) is set to pay the ‘dead’ Finance Bank of Malawi compensation for loss of business since 2005 in compliance with a court ruling.

Malawi Supreme Court of Appeal yesterday faulted the regulator of financial services’ decision to revoke Finance Bank’s licence over alleged malpractices, including claims that the bank opened ghost accounts used to externalise foreign currency.

Delivering its judgement in Blantyre, a seven-member Supreme Court panel comprising Chief Justice Rizine Mzikamanda, Deputy Chief Justice Lovemore Chikopa and Justices of Appeal Frank Kapanda, Charles Mkandawire, Sylvester Kalembera, Dingiswayo Madise and Rowland Mbvundula, the court said RBM’s decision to revoke the licence was unlawful, ending a 21-year legal battle dating back to May 2005.

The Supreme Court also granted Finance Bank its wish for compensation for loss of business.

Reads the ruling: “It is declared that the suspension of the defendant’s [Finance Bank of Malawi] foreign-currency operations on or about 17 May 2005 and the revocation of the defendant’s banking licence on or about 18 May 2005 were undertaken in breach of the constitutional requirement of lawful and procedurally fair administrative action and were therefore unlawful.”

The court further ruled that damages be assessed by the assistant registrar of the Supreme Court.

Records show that Financ

e Bank Malawi in 2001 made a profit-after-tax of K70 million while in 2002 the profit jumped to K159 million and in 2005 it dropped to K121 million.

In June 2006, Finance Bank chairperson Rajan Mahtani said in a statement that between June and December 2005, the bank’s level of deposits  dwindled from K2.13 billion to K381 million while total assets  dropped from K3.48 billion to K926 million.

Yesterday, Wapona Kita, one of the lawyers that represented Finance Bank, said in an interview that the financial loss to be compensated is in terms of profits the bank could have made every year from 2005 up to now, including interest.

He said the bank’s legal team will engage financial experts to work out an objective figure for the loss suffered.

“The matter will go before the registrar for the assessment based on what our experts are going to submit,” said Kita, adding that the court has also granted the bank’s prayer for the restoration of its licence. 

During proceedings, Finance Bank argued that the central bank did not give it an opportunity to be heard and revoked the licence without inspecting the bank but instead relied on external reports.

In a separate interview, Attorney General Frank Mbeta said RBM submitted that all due processes were followed before revoking the licence and prayed for the dismissal of the appeal.

“We will wait until they [Finance Bank] serve us with their documents on the assessment and we will rigorously challenge it,” he said.

The case started in the High Court of Malawi Commercial Division in May 2005.