How Kariakoo traders defrauded Stanbic Bank

“Stanbic Bank Tanzania is to be restructured to return the business to profitability and has taken decisive action to improve the bank’s performance. It received capital injection of Sh24 billion ($15 million) from its parent, Standard Bank Group, on 31 July 2013 to ensure smooth and stable operations of the bank,”  

Dar es Salaam. A Harvard-tailored banking scheme that was fully controlled from Santiago, Chile, has cost Stanbic a loss of Sh15 billion, The Citizen has reliably learnt.

Standard Bank (Stanbic) bought the banking product made in Harvard and introduced it at the busy Kariakoo market -- despite protests from its local top management -- in the hope that it would boost its presence and profit. Attracted by the multimillion-shilling transactions at Kariakoo everyday, Stanbic gave traders in the busy inner city Sh18 billion-worth of unsecured loans last year.

The only collateral that was needed to borrow money was that the applicant undergo a psychometric analysis The test is a method by which a person can sense or “read” the history of an object by touching it. Banks and other organisations use psychometric analysis to find out the most able and best suited persons for a job or course of study.

In the case of Stanbic Tanzania, the computerised system was used to identify the best and worst people to give the loans to. A total of Sh18 billion was issued to Kariakoo traders on the basis of the system. Another Sh26 billion was issued as personal loans to company employees, with just the salary slip as collateral.

The former had a loss ratio of 83 per cent while the latter had loss ratio of 65 per cent, sources say. The psychometric analysis gave Stanbic 83 percent loss ranking, meaning the bank suffered Sh15 billion loss in 2012/13. Altogether, the bank lost Sh31 billion.

Kariakoo traders took advantage of the bank’s laxity in loans management, especially after learning that their loans were being managed from Kampala in Uganda. Stanbic officially announced a Sh14.9 billion loss during the quarter ending September 2013, according to its latest financial statement.

This is just a continuation of the bank’s poor show which began last year and which sources say is a result of remote control of the institution’s operations from its hub in South Africa and from Stanbic Uganda.

The Citizen has reliably established that when Standard Group wanted to introduce the Harvard-tailored product, the local team in Tanzania strongly rejected the move, citing serious risks that could eventually hurt the bank financially.

According to reliable sources within the Bank, Standard Group overruled the local managers and tasked the Stanbic Uganda to spearhead the entire loan process.

Our source said: “The head and respective teams under Stanbic Tanzania’s personal and business banking department reported directly to South Africa with no reporting to the local CEO/MD. Business strategy for customers, products and credit loans were directly rolled out of Johannesburg with very little input from management of Stanbic Tanzania and any interference or resistance was treated as dissent and disciplinary action was taken.”

The psychometric test was done out of Santiago in Chile. Traders did not need to have a bank account to access the loans while credit approval and booking of the loans was done out of Stanbic Uganda, with no input from Tanzania. The collection of the loans was also done out of Stanbic Uganda.

According to sources, there were no limits in place to monitor the ageing process of these loans that were issued through the Personal and Business Banking—a situation that resulted in misleading data.

The Citizen wrote to Stanbic management three times seeking a response to the claims, but the bank kept mum.

Witch-hunting begins

When Stanbic, which operated profitably in the past few years, abruptly became a loss-making entity because of its rush to introduce unsecured loans, the bank’s headquarters embarked on a witch-hunt, according to reliable sources.

The losses have become a reason for mistrust, with headquarters trying to figure out who might have been behind the poor show. This has resulted in the transfer of former Managing Director Bashir Awale and the dismissal of some senior managers who worked closely with him.

Mr Awale will be remembered for running the bank profitably at some point in his seven-year tenure and for facilitating the closing of a $600 million amortisation private placement on behalf of Tanzania. He was in May this year reportedly transferred to Kenya to take up a new position as the Regional Investment Bank Executive for East Africa as well as Ethiopia and South Sudan.

It is not clear, though, why he did not take up his new position. His departure set off an exodus of staff and the sacking of senior managers believed to have been close to him during his tenure as the MD.

He told The Citizen last week: “I am no longer with the bank, but I hope one day the truth will come out. What pains me is the fact that those who questioned the unsecured loan scheme but were ignored are the ones being targeted today.” He declined to give more details, saying that since he was no longer working with Stanbic, he was not in a position to disclose further financial details.

When The Citizen tried to get the bank’s side of the story, Acting Managing Director Paul Omara said: “Stanbic Bank Tanzania does not divulge details of internal HR processes, in keeping with Standard Bank Group policy.”

He neither admitted nor denied the numerous claims of remotely-controlling the management of the bank, specifically the personal and business banking department, from South Africa and Uganda but quipped: “Stanbic Bank Tanzania has stringent and robust processes in place to comply with the fiduciary and regulatory laws as set by the government of Tanzania”.

With the loss going public as required by laws governing the banking sector in Tanzania, Mr Omara said the bank was doing all it could to return to profitability. One of the ways being employed, he said, is the injection of a $15 million capital from the parent company, the Standard Bank Group.

“Stanbic Bank Tanzania is to be restructured to return the business to profitability and has taken decisive action to improve the bank’s performance. It received capital injection of Sh24 billion ($15 million) from its parent, Standard Bank Group, on 31 July 2013 to ensure smooth and stable operations of the bank,” he said.

But he maintained his silence on pressing issues that are said to have turned the once profitable bank into a loss-making entity and triggered reshuffles within the management structures.
There are claims that in its heyday, the bank had only three expatriates on board but, following the huge loss in recent months, Stanbic has brought in about 20 expatriates in an attempt to turn around the bank.