Interview: Dan Maraye, Former Governor – Bank of Mauritius —
‘The only way the BAI Group could have been salvaged would have been through a form of stimulus package’
‘For the sake of transparency, we all wish for the full nTan Report to be made public’
As from 2nd April 2015, Mauritius has been spending a lot of time and energy trying to weather the storm in the wake of the work of deconstruction of its financial sector launched since that time. The latest in the series is the publication of a report from Singaporean consultants nTan to explain how the business of the erstwhile British American group was mishandled, resulting in significant losses to the detriment of the trusting public – depositors, insurance policy holders, financial investors. The work of reconstruction, it appears, has been undertaken by enacting a law such as the Captive Insurance Act which is believed to create some ten thousand jobs. In the midst of all this upset, we have, this week, sought the views of Dan Maraye, former Governor of the Bank of Mauritius, after the publication by the Bank of Mauritius of a redacted version of the nTan report on the BA group and how to interpret the unfolding events.
Mauritius Times: What does the reading of the Report of nTan Corporate Advisory Pte Ltd of Singapore which had been called in to “to examine the facts, inter alia, behind the complex financial transactions carried out by Bramer Banking Corporation Ltd (In Receivership), its related parties, affiliates, shareholders, directors, and its connection with other financial institutions” do to your health? Does it “chill your soul”?
Dan Maraye: Only those who have been hibernating in a bubble can be subject to the soul chilling syndrome when faced with the realities of ultra capitalism where heaven and hell can be only one breath away.
The nTan report is strictly based on the examination of facts stated in the audited accounts and related documents and information made available to them. Much of the contents of the report were already known to most of observers of economic activities of our country. Most were perplexed that no regulatory authority deemed it necessary to take appropriate action they were empowered to through established laws, regulations and other set guidelines.
The report does indicate the impotence of our institutions when people close to political powers are involved. One tends to conclude that auditors, board directors and senior executives of the Bramer Bank, the Bramer Property Fund (“BPF”) have not drawn basic lessons from the story of defunct financial institutions over the last quarter century.
Those who have read and understood the report on the BCCI affair will understand the complexities of financial transactions and the ultimate fate of creative accounting and window dressing.
* Before we go into the “soul-chilling” facts in relation to Bramer Banking Corporation Ltd and the other parties involved, a number of questions arise as regards the manner in which this case has been handled: there has not been any gagging order by the Bank of Mauritius against the publication of the nTan Report nor against the leaks published in the local press prior to the Report being submitted to the Bank of Mauritius on 27 January 2016 and thereafter made public on 29 Jan 16 – unlike what happened in the MCB affair involving NPF deposits. Does that surprise you?
It is true that consistency in the treatment of similar cases adds to the credibility of an institution. However, there may be a case that the MCB/NPF affair and the BAI affair may not be entirely similar. The MCB/NPF affair involved the National Pensions Fund and certain high-ranking officials of government but there was no loss of funds raised from the public except for the public funding of the cost of the nTan Report. Whereas, in the case of the BAI affair hundreds of our honest citizens will lose their hard-earned money. In any case, the publication of any report on financial scandals can help to eliminate weaknesses in any system and promote further research in the subject.
* The nTan Report must surely have come with a sizeable price tag – this has not been made public by the BOM – but the thousands of stakeholders directly or indirectly connected with the Bramer Banking Corporation Ltd, its related parties, affiliates, etc, namely insurance policy holders, bank depositors, shareholders… would have expected that the whole Report and not just a redacted version, with names of individuals and entities struck off, would have been made public — this, for the sake of transparency. What do you think?
As stated earlier, the cost of the nTan Report will be borne by taxpayers and you are right to emphasise that the fees will be sizeable. However, we are made to understand that the report is an interim one and it is only when the final version is submitted to the authorities that we will know whether the full report will be made public or not.
For the sake of transparency, we all wish for the full report to be made public sometime in the future.
* Another striking feature of the nTan Report relates to the number of disclaimers that the Report comes with: “documents and information (made available by the BAI Group and certain other parties) have not been independently corroborated, checked or verified”; “conclusions or inferences” drawn in this report “against individuals and/or entities, such findings or inferences have not been made known to the individuals and/or entities who have therefore not been given the opportunity to comment on or correct the said findings or inferences”; “findings, comments and recommendations are not intended to be exhaustive”… Do those disclaimers diminish the worth of the Report (for example, in a court of law) and does it make it highly contestable?
It is normal practice for reports to come with certain disclaimers. Any report with unreasonable and extensive disclaimers increases its limitations, thereby making the validity of findings questionable. The redacted nTan Report comes with ten limitations stated in schedule one of the report summarised in three pages.
One needs to bear in mind that a forensic accounting exercise is not a Court of Law. However, it is expected that any Court proceedings in the BAI affair will give the opportunity to all concerned to give their version of relevant issues involved.
* The view has earlier been expressed in this paper that “as a rule of law country, all parties – be it the authorities or those in charge of running companies – have to follow a series of laid-down procedures to either turn around a company which can be salvaged or accompany in an orderly manner another which must take the insolvency route”. Does what we now know from the nTan Report about the BAI’s “complex financial transactions” that the Group could have been salvaged?
The view expressed in your paper in a recent interview is correct. However, on the basis of information gathered from the nTan Report, it appears that the only way the company could have been salvaged would have been through a form of stimulus package from public funds as had been the case in 2008 when public funds had been dished out to certain companies whose owners were either advisors or party members of the former government.
It is true though that the case of the Apollo Hospital could have been managed in a much more professional and efficient manner as this institution was a flagship which Mauritians were proud of.
* The revocation of the banking licence of the Bramer Bank clearly precipitated the downfall of the BAI Group. There could have been some justification for that decision given that the Bank was “heavily exposed to its related parties and was in breach of BOM’s regulatory limits on related party exposure”, but other equally exposed banks like the MPCB and the DBM have been spared of such sanctions. Does that strike you as a case of double standards applied selectively in this sector?
The Development Bank of Mauritius (“DBM”) has never been under the purview of the Bank of Mauritius. The shareholding of the Mauritius Post and Cooperative Bank (“MPCB”) was as follows:
– The Mauritius Post Limited — 44.30%
– Government of Mauritius — 35.72%
– Sugar Investment Trust — 10%
– DBM — 8.93%
– Cooperative societies — 1.05%
Whereas the Bramer Bank was privately owned and controlled by one main shareholder. In the circumstance, it may not be correct to raise the issue of double standards.
However, it is true that the management of both banks have been well below the standards required for an institution holding a bank licence.
In fact what is glaring double standard is the treatment of the former Chief Executive of the MPCB as opposed to that of the Bramer Banking Corporation. In my view, both of them are equally responsible and accountable for the disrepute they have brought upon their respective institutions, and neither of them should now be considered as fit and proper persons to lead any financial institution.
* To its own question as to whether the “BAI Group’s activities could have been stopped”, the nTan Report sets out a series of open-ended questions – with no answers provided — pertaining to the role of the auditors (KPMG and BDO), the financial regulator (FSC), valuers and actuaries, independent directors, executive directors and senior management of the Group, and submits that “if they had played a greater role, perhaps the questionable transactions and practices would not have been implemented”. Given that the concerned individuals and/or entities have not been given the opportunity to comment on or correct the said findings or inferences, do we not need to know who then is ultimately responsible for all this mess?
It appears to me that nTan has been very diplomatic when they state “greater role” when it could have been more appropriate to state “the role expected from professionals of integrity”. In the absence of a hearing, the concerned individuals could have sworn an affidavit.
The case of KPMG appears to be clear-cut. Whereas BDO, as a matter of ethics, should answer the following questions:
(i) Were there no additional audit procedures when related parties are concerned?
(ii) In what way had the “arm’s length” issue been checked? It is well known that even listed values can be challenged if trading is low.
(iii) Have they assessed the amount of accrued income that could be written off as bad debts?
(iv) Has the ability and liquidity position of Bramer Property Fund been assessed in light of fixed repayment horizons?
(v) The market was well aware that the BPF had a winding up plan. Do not such matters warrant a going concern emphasis of matter in the audit report?
* We have been told time and again in the wake of the MCB affair involving NPF deposits that the regulatory framework of supervision and auditing would be strengthened so as to protect the public and to prevent repeats of instances of reckless behaviour/questionable business practices by financial institutions. We have had nevertheless our lot of Sunkai, Whitedot, etc., and lately the BAI. Why do these things keep happening?
It is clear that political interference in our institutions is the main cause of decadence. The hands of politics have been very visible in our institutions. Is it a coincidence that during the Labour Party government 2005-2014, the second Deputy Governors of the Bank of Mauritius have been former executives from the BAI group?
* At the launch of the newly born MauBank last week, the Minister of Finance has announced that he is negotiating with a major bank in Dubai to take over the MauBank. What’s your take on that?
MauBank is a merger of two banks that have been very poorly managed. The work culture of these two banks are completely different. It would have been wiser and less costly had the MPCB been made to simply absorb the Bramer Bank as soon as its banking licence was revoked. It is to be noted that the banking licence of MPCB has not been revoked.
I am appalled that MauBank which is only one week old and government has announced an injection of public funds to the tune of Rs3bn and negotiations for its takeover have already started with a major bank in Dubai. As a matter of good governance, government should clearly state its objectives with regard to the future of MauBank as considerable public funds are involved. In case of any takeover, it would be more appropriate to call for bids internationally and the whole process should be fully transparent. It appears to me that we are putting too many eggs in the basket of the already troubled kingdoms of the Middle East.