By ALLAN OLINGO
In Summary
- The African Development Bank has stopped disbursement of a $8.2 million equity injection into Shelter Afrique after a whistleblower revealed that the housing financier cooked books, which the Bank relied on to make the investment.
- A week ago, rating agency Moody’s downgraded Shelter Afrique from Ba1 to Ba3 and placed it under investigation. It said the lender had not succeeded in securing capital committed by shareholders. It said risky credit lines to financial intermediaries also threatened already weak shareholder support.
- AfDB’s revelations come barely a fortnight after documents leaked by the firm’s former finance director Godfrey Waweru alleged creative accounting and subprime lending.
The African Development Bank has stopped disbursement of a
$8.2 million equity injection into Shelter Afrique after a whistleblower
revealed that the housing financier cooked books, which the Bank relied
on to make the investment.
Sources said AfDB has now decided to withhold the disbursements,
pending an audit by Deloitte. The Bank is expected to discuss the
matter this week and make its position public.
“AfDB’s board will be meeting on November 22 in Abidjan over the
matter. But, as it stands, they have stopped the equity investment
indefinitely,” a source told The EastAfrican.
In February, AfDB announced that it would inject the money into
Shelter Afrique to strengthen its balance sheet. But documents seen by The EastAfrican
show that the finance department had stated $38 million as
non-performing loans, but the statements sent to AfDB showed $27.19
million. Internal documents showed substandard loans at $14.1 million,
but only $2.04 million was disclosed to AfDB.
Shelter Afrique is owned by 44 African states, AfDB and African Reinsurance Company.
A week ago, rating agency Moody’s downgraded Shelter Afrique
from Ba1 to Ba3 and placed it under investigation. It said the lender
had not succeeded in securing capital committed by shareholders. It said
risky credit lines to financial intermediaries also threatened already
weak shareholder support.
“The key driver of the two-notch downgrade is the material,
structural deterioration in Shelter Afrique’s credit metrics, driven by
rising leverage, deteriorating capital buffers and weaker liquidity
position. Due to limited increases in capital subscriptions from its
sovereign shareholders, and weak profitability lowering its ability to
generate capital organically, Shelter has relied heavily on debt to fund
the expansion of its balance sheet,” said Moody’s.
“Capital adequacy, as measured by the asset coverage ratio, has
halved, compared with when we rated the bank in 2011. Leverage has
increased by 1.7x, and the recent loosening of the bank’s liquidity
policy coupled with its debt-funded growth strategy point to a
structurally weaker liquidity position.”
But Shelter Afrique’s compliance, risk and legal director Vipya
Harawa said the basis of the downgrade is not the ongoing audit but
rather the structural changes at the lender.
“The basis of this downgrade was that our expansion doesn’t
ensure sustainability in capital structure and liquidity. It has nothing
to do with the current issues the board is investigating,” Mr Harawa
said.
AfDB’s revelations come barely a fortnight after documents
leaked by the firm’s former finance director Godfrey Waweru alleged
creative accounting and subprime lending.
In his whistleblower email to the board, Mr Waweru accused the
company’s managing director James Mugerwa of presiding over a regime
that was restructuring overdue loans by rescheduling such facilities to
appear as performing, effectively understating the volume of toxic
mortgages.
Classified as non-performing
“The loans are restructured multiple times to ensure they are
not classified as non-performing and are therefore hidden NPLs that are
not disclosed,” Mr Waweru’s e-mail to the lender’s financiers reads.
According to the ex-finance chief, the loan impairments are made
based on the desired net results, despite a large proportion of the
company’s projects having repayment problems and being restructured
several times or swapped against assets that do not have a market at the
swap rate in a bid to reduce the NPLs and loan impairment charges on
the loan portfolio.
Mr Waweru told The EastAfrican that under instructions
from senior management, some of the loans that have been non-performing
have been restructured more than four times in a bid to hide their
non-performance status.
“The company’s true position is that it is loss-making, if we
were to capture the non-performing loans as guided by the international
accounting standards, without massaging or cooking the books. This has
led to a significant understatement of the NPLs and loan impairment
charges,” Mr Waweru said.
But Mr Harawa denied that the bank has misrepresented its books.
“I think the finance director got it wrong when he tried to
benchmark our reporting with that of the Central Bank. We do our
provisions after 182 days and not 90 days as he said in his e-mail. But
the board has hired an auditor to look at the books and give us a
report,” Mr Harawa said.
The bank has also been accused of turning a blind eye to the
conflict of interest of one of the board members, Hardy Pemhiwa, who
owned 34 per cent shareholding in Amana Capital, allowing him to do
business with the lender without the board’s approval.
“I was asked by the managing director to send $500 million to
Amana’s accounts, as Mr Pemhiwa had said he could secure better returns
for us. The MD even signed the cheque, but I refused to append my
signature. However, after the 2014 Christmas break, we processed the
payments and Amana received this amount. I didn’t see any board approval
for this, nor did Mr Pemhiwa declare any conflict of interest,” Mr
Waweru said.
Shelter Afrique confirmed that the transaction took place but Mr
Harawa said only the former finance director and the managing director
could give a true position on the matter.
Board’s approval
“I sent an email advising against this transaction. I told the
management that they had limits on what amounts they could approve and
what the board could. For this transaction, they needed the board’s
approval and the director needed to declare his interest. None of them
responded to my counsel,” Mr Harawa said.
Shelter Afrique’s board chairman Jean Paul Missi said that they will give Mr Waweru’s allegations the appropriate attention.
“We have appointed a reputable firm to conduct an independent
forensic audit on the allegations and are confident that any issues that
arise will be handled effectively,” he said.
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