Trustco, the embattled Namibian investment company, is courting another controversy — this time involving its loss-making banking subsidiary.
Last week, Trustco — which also holds diamond mining interests, property, insurance and private education assets — went to court to stave off attempts by the Bank of Namibia (BON) — the central bank of Namibia — to set aside directives issued against Trustco Bank. The directives include immediately ceasing deposit taking and discontinuing the extension of credit.
The BON has suggested Trustco Bank is insolvent, and that it is seeking to liquidate the entity.
The developments come at a testing time for Trustco, which has seen its share price plunging 80% over the past 12 months. The Trustco Bank matter is unfolding as the group is still embroiled in a prolonged legal spat with the JSE. Trustco is hoping to overturn a ruling that it failed to comply with International Financial Reporting Standards (IFRS), which would mean it would need to restate its financial statements for 2019. The JSE has pushed for the suspension of Trustco on the bourse.
The issue at Trustco Bank — the old Fides Bank acquired by Trustco in 2016 — revolves around efforts to recapitalise the entity and finding an acceptable business plan to ensure operational sustainability.
In the year to end-March 2021, Trustco Bank reported accumulated losses of some R211m with the current financial year loss sitting at R38.5m. The bank’s auditors raised a material uncertainty issue on going concern in the audit report.
At that stage, Trustco — to ensure a going concern status — had committed to a capital injection of R100m over three years.
But last week Trustco CEO Quinton van Rooyen said the investment group had offered to recapitalise the bank for a more substantial sum.
Van Rooyen said that court action came in the aftermath of two years of correspondence and threats between Trustco Bank, Trustco and the BON. He said the BON had also denied Trustco’s offer to capitalise Trustco Bank’s balance sheet by a further R1bn.
The BON, however, hit back with governor Johannes !Gawaxab stressing the central bank did not decline the offer of a R1bn recapitalisation. Instead, he said, the BON had responded by giving a detailed analysis of Trustco Bank’s proposed business plan and the reasons it regarded the plan as inadequate.
“As the regulator of banking institutions in Namibia, the BON has engaged Trustco Bank over the past two years in an attempt to ensure regulatory compliance and, ultimately, the financial sustainability of Trustco Bank.’’
!Gawaxab said that on September 5 the BON’s directors — after extensive engagement with Trustco Bank — had no other option than applying for the winding up of Trustco Bank. He said the BON informed Trustco bank of that decision on September 16 — shortly before Trustco approached the High Court of Namibia for a review.
The BON indicated that the shortcomings identified at Trustco Bank included “severe flaws” in the bank’s risk management practices and systems, a failure to maintain liquidity ratios within the prescribed ratios and failure to comply with agreed upon directives to recapitalise the institution.
!Gawaxab said the BON’s directors viewed Trustco Bank as “commercially insolvent” at this time — adding that the bank continued to operate without an approved viable business plan and sufficient capital to carry out the plan.
In court papers, Van Rooyen argued there was no evidence of Trustco Bank conducting business in a manner detrimental to any customer of the public.
“It was never likely that Trustco Bank will become insolvent, not In December 2020, not in July 2020, and it is still not likely that Trustco Bank will become insolvent.”
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