Investrust Embroiled in Historical K850 Million Insolvency—We Answer Your Questions

Gerald Hamuyayi (FMVA)? , Lusaka, Sunday, 21 April 2024 – This is an Investrust Bank Plc Q&A to aid the Zambian public with a smooth comprehension of the Bank of Zambia ’s takeover of Investrust Bank based on the central bank’s 11th April 2024, Investrust media briefing.

1. What happened at Investrust Bank Plc?

- The Bank of Zambia took management control of Investrust Bank Plc on 2 April 2024. Investrust Bank Plc became insolvent, with value of its assets falling below its liabilities, resulting in a negative capital position. The bank faced high overhead costs and accumulated losses over the years with the losses exceeding k11 million at the time of takeover. It underwent restructuring, including the divestiture of original shareholders.

2. What is the preliminary estimated level of insolvency?

- The preliminary level of insolvency, stands at around K850 million. Investrust had existing liquidity challenges that worsened in recent months, leading to reliance on costly and unsustainable short-term funding sources.

3. What did BOZ do about the challenges at Investrust Plc?

- The central Bank has had continuous engagements with the major shareholder, ZCCM-IH, to recapitalise the Bank fully. In 2019 ZCCM-IH injected K286 million to recapitalise Investrust, which however was insufficient to put the bank on the sustainable capital base. It also tried the Group’s reorganisation in 2020 that would have led to Industrial Development Cooperation (IDC) becoming the major shareholder which was unsuccessful. After these efforts, Investrust has been trying to seek an equity partner until the time BOZ assumed control. ZCCM-IH confirmed their medium-term strategy was to focus on mining.

4. What was Investrust Shareholding at the time the Bank of Zambia took control?

- Investrust's shareholding at takeover: ZCCM-IH (74%), Bank of Nervis International Limited (24.1%), Others (4.5%).

5. Why did the Bank of Zambia have to assume control of Investrust?

- BOZ took control of Investrust when it was no longer deemed to be a going concern, meaning that efforts to ensure its ongoing operations failed. The Bank of Zambia announced a notice of taking possession of the bank to prevent asset devaluation, protect depositors, and maintain financial stability.

6. How long will it take for BOZ to prepare a Statement of Affairs

- The BOZ will make the Statement of Affairs ready in approximately eight weeks from the date of takeover. This involves examining and validating the bank financial records. The central bank will evaluate the best options based on the Banking and Financial Services Act of 2022. The Act does not provide a time limit but allows the Bank to prepare the Statement of Affairs as quickly as is practically possible.

7. Why didn’t Investrust Shareholders find an investor to plug the capital gap?

- Despite efforts, an investor or equity partner was not found to capitalise the bank.

8. How are the depositors affected?

- Depositors will not be able to transact via the bank infrastructure for salaries, suppliers, or bills until the issue is resolved.

9. When will the depositors have their issues resolved and are their deposits safe?

- All validated depositors will receive their first payment on 26 April 2024. The coverage of this payment will be up to a maximum of K500k. This will cover over 90% of the total deposit accounts, meaning every account with a balance of k500,000 and below will have full access to their funds. At the time BOZ gained control, Investrust had about 57,000 existing accounts.

10. What should you be doing as an account holder with Investrust?

- As an account holder with Investrust, stay alert for updates on takeover status from the Bank of Zambia through print and digital media.

11. What happens to Investrust customers with outstanding loans?

- Investrust customers with outstanding loans must continue to make payments and will receive guidance on repayment options. Further, all debtors must keep servicing their dues to Investrust Bank as will be guided. Failure to do so will result in necessary legal action being taken if necessary.

12. To what extent can BOZ support a distressed financial institution?

- The Bank of Zambia can offer liquidity support to troubled banks facing liquidity challenges. However, if the bank's issues are related to capital problems, the central bank cannot intervene in the shareholders' ownership.

13. What has the government done in this takeover saga being a key stakeholder?

- Government has committed fiscal support of k1 billion to plug the estimated k850 million funding gap between assets and liabilities. With this assistance, 90% of depositor’s account will be fully cleared, granting them have full access to their deposits.

14. What happens to Investrust employees?

- Investrust employees (323 at the time of takeover) will have their situation addressed by the Central Bank. The Central Bank will engage with the employees and the Ministry of Labour to determine the appropriate course of action based on legal provisions once the Statement of Affairs is completed.

15. What is the Central Bank doing based on lessons learned on bank failures?

- The Central Bank is revising the Banking and Financial Services Act to align capital rules to global standards and adopt Base 3 rules to strengthen liquidity buffers in dynamic macroeconomic conditions. It is also enhancing the prompt and corrective action regime and problem bank framework, along with developing a deposit protection scheme. Additionally, revisions to corporate governance guidance and the Fit and Proper guidance will also enhance institution governance and vetting processes. Furthermore, the BOZ is working on increasing the banking sector capital requirements having last revised then in 2012. The BOZ continually advises banks to diversify their client base and avoid business concentration on a single customer.