EXCLUSIVE: INSIDE THE CENTRAL BANK BATTLE WITH FARMERS BANK AND THE MESS THAT CAME WITH IT (PART 1 OF OUR SERIES)
About six years ago, on July 14, 2017 to be exact, a Farmers Bank submitted an application for a commercial banking licence to the country´s Central Bank.
For the next six years the Ministry of Finance, the Central Bank and the foreign owned Farmers Bank have been playing cat and mouse with the issuance of a banking licence.
An independent licensing review done by Kroll, a UK based consultancy company that deals with cyber security, risk assessment and transparency, working on the instruction of the Central Bank, has uncovered irregularities in the issuance of the license and the undue pressure the Central Bank faced leading to the revocation of their own decision not to issue the licence.
The Farmers Bank founder and ultimate beneficial owner is Canadian national identified in the report as A. Asfar and his brother J. Asfar. The board of directors include Christo F Wiese, Richard J Squires, Allan Cawood, Seteng Motalaote, Louie Coetzee and Terrance Payne.
J. Asfar is a director of Farmers Bank as well as its holding and ultimate parent companies, namely Worldwide Capital Corporation NZ, and Tetrillion.
According to the 2006 Internal Licensing Guidelines, any prospective bank owner needs to request a preliminary conference with a Central Bank Inspectorate & Control Department representative before commencing a license application.
In the case of Farmers Bank, no such preliminary conference took place prior to 14 July 2017. The only reference to any meeting before the submission of the application, according to the Kroll report, is an internal CBE email dated 14 July 2017 from former Finance Minister, who was to later become Governor of the Central Bank, Majozi Sithole states that he received a “royal command” to attend a meeting on 14 July 2017 with the then Minister of Finance, Martin Dlamini; the Minister of Agriculture; and unnamed members of the Farmers Bank team, to discuss Farmers Bank’s interest in establishing a bank.
In subsequent internal email correspondence, a staff member at the Central Bank stated that he suspected (but could not confirm) that the Farmers Bank application may have been related to a request he received in “late 2016 or early 2017” from an individual named Mr. Sikelela Dlamini to meet with “acquaintances of one of the Princes” who was inquiring about the banking licence application process.
On 26 July 2017, the Central Bank wrote to Farmers Bank confirming receipt of its application and requesting that certain information missing from the application be provided.
The Central Bank logo
The Central Bank provided the Farmers Bank with 30 calendar days to address the deficiencies noted, which is in line with the 2006 Internal Licensing Guidelines.
“Under Circular 19, which was in effect at the time, all proposed directors and executive officers were required to submit a form to the CBE with personal information including a list of all connected persons.
The only person declared as a connected person in the application is Aleasha Asfar, A. Asfar’s wife. Neither J. Asfar (is his capacity as a director of Farmers Bank), A. Asfar nor any of the proposed board members submitted a complete list of connected persons.
Kroll has not seen evidence that the CBE requested that the Applicant provide this information,” reads the Kroll report in part.
On 23 August 2017, the Central Bank notified Farmers Bank that it had received all the information required for the application to be considered complete at that point, and that the bank would commence with a detailed evaluation.
Under the 2006 Internal Licensing Guidelines, 23 August 2017 would be considered day zero of the 90-day application evaluation period. On Day zero, the Central Bank should notify the Minister of Finance that evaluation of a banking licence application has begun.
However, the Central Bank did not officially notify the Minister of Finance Dlamini at this point. On 18 September 2017 the Central Bank wrote to Farmers Bank requesting that a personal balance sheet, income statement, and detailed curriculum vitae be provided for both A. Asfar and J. Asfar. The Central Bank explained that these documents were required in order to “finish the evaluation of and make a decision on the application.”
Based on a review of available information, the UK consultant found that none of these documents was provided by J. Asfar to date.
Further, Asfar only complied with the request in 2022 when, following repeated requests from the Central Bank, he provided personal financial statements for the years ended 31 December 2015, 31 December 2016, and 31 December 2017.
“Under Circular 19, the CBE must be satisfied that directors of a legal entity applying for a banking license are ‘fit and proper’ persons. J. Asfar is a director of Farmers Bank as well as its holding and ultimate parent companies, namely Worldwide Capital Corporation NZ, and Tetrillion, and as a director should have submitted a fit and proper assessment. As discussed in Section 9 of this report, the CBE requested at the time of the initial application evaluation that J. Asfar submit a personal balance sheet, income statement and curriculum vitae.
"We have not seen evidence that the CBE requested a fit and proper assessment for him during their initial evaluation of the application, but this was subsequently requested by the CBE in August 2020. J. Asfar has also not complied with the CBE’s requests for personal balance sheets, income statements or a curriculum vitae,” reads the scathing report.
To be fair to the Central Bank, on 26 October 2017, the bank´s Policy and Enforcement Unit and Bank Supervision Division issued a report to the Board of Directors detailing the outcome of its assessment of the Farmers Bank license application (the “Assessment Report”).
The Assessment Report noted a number of shortcomings in the application including that “the applicant does not demonstrate satisfactory transparency and consistency in the information regarding source of capital.”
The report also recommended to the Central Bank Board of Directors that the Farmers Bank’s application for a commercial banking license be rejected and instead should be offered a conditional merchant banking licence.
The CBE’s decision to reject the Applicant’s commercial banking license application and its offer of a merchant banking license was communicated to Farmers Bank in a letter dated 14 December 2017.
The Central Bank´s offer letter dated 14 December 2017 identifies contradictory statements made by Farmers Bank in respect of its intended operations, including its stated intention to install a network of 200 ATMs across rural eSwatini despite stating it did not intend to receive deposits from the public.
Email correspondence shows that the the Central Bank assessment team were not in favour of the suggestion to offer a merchant banking license either when it had not been requested by the Farmers Bank and they believed it would “tarnish the regulatory integrity of the Central Bank’s licensing policy."
On 18 May 2018, Governor Sithole received a letter from then Minister of Finance Martin Dlamini, which noted that “while reporting on an assignment by His Majesty involving an investor whose intention is to establish a bank institution,” the Ministry of Finance had been given a “command” to investigate and review the licensing process for prospective banks.
Then Minister of Finance Martin Dlamini also questioned the Central Bank about its “reluctance” to issue banking licenses in eSwatini. In a response dated 1 June 2018, the Central Bank confirmed its willingness to assist with the review.
The bank also explained that it had only received seven applications over the past twenty years and that these had ultimately been denied because the applicants had either failed to meet minimum required standards or failed to commence operations.
Former Central Bank Governor Majozi Sithole during his farewell celebration
Continues the report: “According to a letter dated 12 September 2018, Farmers Bank was subsequently awarded a full commercial banking license by the CBE. The license certificate was issued to Farmers Bank by the CBE on 17 September 2018 and was valid from 17 September 2018 to 16 September 2019. In addition to the conditions discussed above, Farmers Bank was also required to commence banking operations within one year (i.e., by 16 September 2019). The decision to grant the license was published in an extraordinary notice in the Eswatini Government Gazette on 17 September 2018. Kroll has not been provided with internal CBE documentation (e.g., CBE BoD minutes or internal CBE reports) explaining the rationale for the change in the CBE’s decision, resulting in it granting the Applicant a conditional commercial banking license in March 2018.”
Email correspondence seen by Kroll consultants, however, that shows the decision to grant a full commercial banking license in September 2018 was made by Governor Sithole, allegedly on the instruction of a third party external to the Central Bank.
In an email dated 11 September 201829 from Governor Sithole to members of the CBE team, Governor Sithole stated that he had received a “royal command” to issue the banking license and that he had been directed to “give them up to 6 months to comply with the chairmanship requirements and the related issues.”
Revocation of license
On 17 January 2020, the Central Bank notified Farmers Bank in writing of its intention to revoke its commercial banking license under Section 16 of the FIA. The letter explained that the Central Bank’s decision was based on two key issues, namely that Farmers Bank had:
(i) “failed, neglected and/or refused to provide the necessary documentation or evidence to demonstrate the source of wealth and funds from which [Farmers Bank’s] capital seed originates”;
(ii) “that Farmers Bank had failed to commence operations within the prescribed period “in spite of the waiver or extension of the 12 months condition, which the [CBE] granted up to 31 December 2019”.
On 7 October 2020, Farmers Bank notified Minister of Finance Rijkenberg in writing of its intention to appeal the Central Bank’s decision to revoke its commercial banking license. Farmers Bank subsequently filed its formal appeal against the revocation decision to Minister of Finance Rijkenberg, citing Sections 64 and 62 of the FIA.
According to media reports, Minister of Finance Rijkenberg subsequently recused himself from the appeal process due to a conflict of interest and appointed the Eswatini Minister of Commerce, Industry and Trade, Senator Manqoba B. Khumalo to adjudicate the process in his place.
Khumalo’s letter dated 14 December 2020 noted that, based on the information and documentation presented to him during the appeal process, he had concluded that Farmers Bank’s appeal should be upheld as there was “no compelling reason to doubt the source of funds” and that the failure by Farmers Bank to commence operations was due to circumstances outside its control, including the conduct of third parties.
The Central Bank objected to the findings of Khumalo in particular to the manner in which the appeal process was adjudicated. For example, in a Board Paper dated December 2020 which discusses the appropriate next steps for the CBE to take following the outcome of the appeal process, the CBE notes with reference to “procedural improprieties” that: “Despite the Bank advancing arguments to the contrary and in protest, (against the Bank’s proposal which was supported by the Attorney General and confirmed by the Minister, that any process used must be crafted with the involvement of the Bank in terms of the spirit of the law), the appeal was conducted in the absence of the regulations governing the process as envisaged under Section 64 (2) as read with Section 62 of the FIA...”
Seed capital controversy
At the heart of the Central Bank´s fight with Farmers Bank is the concern around providing sufficient information and documentary evidence to support the source of the funds injected into Farmers Bank as seed capital.
Kroll’s review of available documentation showed that Farmers Bank presented at least three differing explanations for the source of the funds used as seed capital.
Below are some of the varying reasons:
—First, Farmers Bank’s initial application submitted in July 2017 does not specifically explain the source of the seed capital, but the application suggests that the seed capital would be financed by Farmers Bank’s ultimate parent company, Tetrillion.
—Second, Directors of Farmers Bank had been funded by an inheritance that A. Asfar had received from the estate of his deceased father, Najib, who died in 2011.
—Later the applicants for the banking license claimed that the seed capital was raised through the sale of personal real estate assets that A. Asfar purportedly owned through private companies incorporated in Canada, and a family trust.
The over 100 page Kroll report goes into meticulous detail on the irregularities, procedural flaws, legal conflicts and many other things that did not go down well with the granting of the license and the external pressure the bank felt to go against their own internal report and recommendation.
The Bridge will continue with the full report in our next edition. Mandla Luphondvo, Head of Strategy and Communication at the Central Bank was contacted for comments on this story.
He indicated that as the Central Bank of Swaziland they generally provide commentary on matters that affect the institution. However, under the circumstances, The Bridge had not afforded them adequate time to respond for the public to have access to a balanced news report on the matter.
"The Central Bank’s only received “the report” after 2000 hours, on a Saturday evening when the story is due for publication on Sunday," he complained.