Why is the viability of the Maubank being relegated to the background?

Yacoob Ramtoola of BDO, the Special Administrator of the now defunct British American Insurance Co (BAI) appointed by the Financial Services Commission, asked that the assets of the former Bramer Banking Corporation Ltd, be transferred in favour of the newly created National Property Fund which he is administering. His objective is to collect those banking assets to pay back certain insurance policy holders of the ex-BAI and investors into the now defunct Bramer Asset Management Ltd which fall under his charge. It is the job of such administrators to look out for funds from whichever source they can to bridge their financing gaps.

It may be recalled that the assets and liabilities of the former Bramer Bank were transferred to the newly created National Commercial Bank at first and then to a subsequent merged emanation under the name Maubank, which took over the assets and liabilities of both the former Mauritius Post and Cooperative Bank (MPCB) and the former Bramer Bank. The government injected a couple of billions of rupees into the new entity to capitalize it. More precisely, to fill the gap that existed between the deposit liabilities of the merged entity and the lesser amount of its total assets – thus, to also meet the requirements of the Banking Act in relation to minimum capital adequacy of a bank.

The liabilities of the former Bramer Bank (now part of the government-owned Maubank) are largely deposits placed by the public. The assets of the defunct bank consist mostly of bank advances and investments in securities and possibly property belonging to the bank – all backed by ex-Bramer Bank’s depositors’ money and capital contributed by the former owners of the bank.

On 12th February this year, Cabinet took the decision to permit the transfer of the earmarked assets of the former Bramer Bank from the Maubank to the Special Administrator of the ex-BAI, Yacoob Ramtoola. It means the already weak asset position of the merged entity, Maubank, was being allowed to be aggravated.

The ex-BAI Special Administrator’s demand was naturally resisted by the Receiver Manager of the ex-Bramer Banking Corporation Ltd (Gérald Lincoln) appointed by the BoM late last year. The demand of Yacoob Ramtoola was also resisted in the Supreme Court by one depositor of the former bank – Laina Rawat-Burns. The case has not been heard at the time of writing. The latter claimed in her affidavit that the Special Administrator of the ex-BAI has no right over the assets of the ex-Bramer Bank and that he was in fact substituting himself for the ex-Bramer Bank’s Receiver Manager who alone has such a right.

The issue became more complex after the ex-Bramer Bank’s Receiver Manager, Gerald Lincoln, unexpectedly resigned, according to a government minister, at the request of the BoM which had appointed him in the first place.

The government, it appears, has guaranteed the repayment of depositors’ money of the ex-Bramer Bank and the former MPCB in the new incarnation, the Maubank. It has thus taken on the moral hazard of finding the funds from the Treasury to the extent existing assets of the two merged banks were still insufficient to meet their obligations vis-à-vis depositors. That would normally imply that the depositors will get back their money from the taxpayers’ exchequer no matter whether the assets (mostly loans, building and investments in securities) previously acquired by the ex-Bramer Bank using depositors’ money finally fetch less than what they are valued at due to their further impairment. Now, part of those assets are likely to be taken away by the Special Administrator, increasing the government’s moral hazard.

Despite this apparently open-ended guarantee from the government, would ex-Bramer Bank’s depositors feel safer if the assets acquired by the former bank with their deposits are now taken away for meeting liabilities not pertaining to the bank, notably Super Cash Back Gold policies of the ex-BAI and amounts invested in the former Bramer Asset Management Ltd of the BAI group which has been dismantled? It is because there is no money to repay such “outside obligations” that the ex-BAI Special administrator, Yacoob Ramtoola, is having recourse to the ex-Bramer Bank’s assets. One should not expect him, who is already short of funds to meet other ex-BAI obligations, to replenish the bank with whatever he is taking away from it, per the Cabinet decision.

Will not the ex-Bramer Bank (part of the Maubank now) become an emptier shell deprived of the assets taken away by the ex-BAI Special Administrator to meet liabilities not in any manner connected with or incurred by it? The Maubank being now deprived of those banking assets, will not the Ministry of Finance have to replenish the Maubank with an even larger amount of taxpayers’ money, due to the aggravated deficit in its finances caused by the removal of its assets by the ex-BAI Special Administrator? The answer is clear; the Treasury will have to cough up even more to fill the gap and put the bank back on an even keel.

The simplistic view taken is to grab those banking assets and sell them away to pacify Super Cash Back Gold policyholders of ex-BAI and investors into the ex-Bramer Asset Management Ltd. On their part, depositors at the bank will have to depend not on actual assets of the former bank (the normal situation) but increasingly more on the word given by the government to redeem their deposits.

Will not the Maubank have to deal with a tougher financial condition after these assets are taken away? Is it not being further handicapped despite its prevailing weak condition? Is it lawful to override the provision of the Banking Act 2004 that assets of a bank should in priority be employed to meet its obligations towards depositors, not outsiders such as Special Administrators?

Is the regulator of banks minding the fact that an institution falling under its purview is thereby being undermined? It seems the priority is to calm down Super Cash Back Gold policyholders by paying them what has been promised them without reckoning with the reality of the residual situation.

The viability of the Maubank, after the ex-Bramer Bank’s assets are taken away from it, is a question being left to posterity and to the capacity of the Ministry of Finance to bridge the gap so created. Wonderful crisis management, isn’t it?

*  Published in print edition on 11 March 2016