Drama as RBM, Finance Bank tussle in court

It could only be described as sheer comedy.

On one hand, chairperson of the defunct Finance Bank of Malawi (FBM) Rajan Mahtan, who has applied for a new banking licence in Malawi, is demanding compensation from government for loss of business since 2005.

The demand, which could run into billions of kwacha, comes in a cross-claim case against the Reserve Bank of Malawi (RBM).

On the other hand, RBM—which has issued a banking licence to Mahtan to reopen banking services under a slightly changed name of New Finance Bank of Malawi—is also suing the defunct bank for K44 million (about $115 000) as management fee.

The new bank’s operations are apparently waiting for Finance Minister Goodall Gondwe to issue a foreign exchange licence.

Mahtan, the Zambia-based banking mogul, on Friday took his stand in the witness box at Commercial Court in Blantyre to fight for his business interests and, in the process, took jabs at the RBM.

He described the central bank as an institution that does not follow the rule of law and that the closing of Finance Bank of Malawi on May 17 2005 was political.

In his affidavit read in court, Mahtan believes the bank’s closure under the Bingu wa Mutharika administration was due to RBM’s belief that it was linked to former president Bakili Muluzi after it wrote off the former president’s K12 million overdraft.

But he explained that the decision to write off the debt was made by the bank’s board because Muluzi was not cooperating.

Yet, the court heard, the bank presented the written off debt as a donation to Muluzi in its books.

On its part, RBM argued that the bank was closed down because of repeated non-compliance to banking laws and procedures despite numerous reminders and cautions from the central bank that its actions, if not corrected, would attract severe consequences.

On Friday, RBM director for bank supervision Eldine Mlelemba told the court that despite the numerous reminders and cautions, FBM did not comply with the recommendations RBM made.

“Recommendations were made and the bank did not comply with all the recommendations and directives RBM made during the period,” he said.

Mlelemba said among other noticeable non-procedural tendencies during the 10 years FBM was in Malawi were violation of foreign exchange exposure limits, creation of fictitious accounts and ghost accounts, contrary to the law.

He added that RBM closed down FBM due to several irregularities that included poor internal controls, defrauding customers, money laundering, and externalisation of money and introduction of Islamic banking products without approval from the central bank and non-compliance to banking procedures.

But Mahtan described the irregularities that RBM noticed at FBM as routine.

Lawyer representing RBM Samuel Masumbu wondered whether it was normal for a bank to steal up to K8.03 million from customers, saying this was too much money at the time FBM was being closed.

But Modecai Msisha, lawyer representing FMB, accused RBM of not following procedures and that the observed irregularities were not only synonymous to FBM.

Mahtan further argued that based on his experience, no bank is perfect and honesty in banking depends on employees, adding this was why banks, worldwide, are moving towards automating their services.

Asked why Mahtan, who feels RBM orchestrated his bank’s ouster in Malawi, would want to seek a new licence from the same institution after about 20 years of FBM closure, another lawyer representing FBM, Patrick Mpaka, said in an e-mail response that the incorporation has distinct corporate personalities.

“The underlying premise here is not totally correct. Incorporation has distinct corporate personality…which does not conflate Finance Bank Malawi Limited with New Finance Bank Malawi Limited,” he said.

Mpaka also parried away suggestions that FBM’s cross-claim was the bank owner’s efforts to capitalise New Finance Bank of Malawi, saying FBM was only defending itself through cross-claim.

Minister of Finance Goodall Gondwe, in a telephone interview yesterday, confirmed receiving a request from RBM asking him to authorise the new bank to be transacting as dealers and said he was still looking at the request.

“We are still discussing with RBM to see if they can transact in forex,” he said.

Gondwe said from what he has seen, although the bank has changed its name, the shareholders are the same.

“We are still looking at the request,” said Gondwe, adding he was not aware that the two parties were also fighting in court over matters relating to the closed FBM.