Former Finance Bank Zambia (FBZ) Limited employee Simata Simata has told the Lusaka High Court that the bank’s chairman Rajan Mahtani allowed two of his directors to borrow money from the bank for a different business venture.
This is in a case in which Mahtani has sued Hotelier Limited demanding compound interest on a loan obtained by people who were working for his bank.
Simata testified that there were irregularities in the manner the borrowing was being managed by the bank because the owners of Hotelier Limited were from of Finance Bank Zambia Limited.
Simata Simata, a witness for Hotelier Limited on Friday told the Lusaka High Court that Finance Bank Zambia Limited allowed Joan Craven and Zaheeda Essa who were employees of the bank to borrow from the bank for another business venture from which Mahtani was now demanding compound interest.
Simata told newly promoted Supreme Court Judge Albert Wood that Hotelier Limited had opened two accounts with FBZ of which one was a Kwacha Account while the other was a Dollar Account which were regular and over which overdrafts could be authorized by the bank.
Simata said at the time Hotelier Limited was contracting the loan, Craven was director in the FBZ board while Essa worked as legal advisor to Mahtani who was the chairman of the bank.
He testified that by virtue of Craven and Essa being employees of both Hotelier Limited and FBZ, Hotelier was at the material time classified as an insider giving rise to what in the banking sector is called inside borrowing.
Simata testified that the Hotelier Limited had been authorized to overdraw its two accounts and that the overdraft facility was approved facility stating that overdraft facilities were in accordance with standard banking practices.
He said the Hotelier overdraft transaction with FBZ over which Mahtani was claiming compound interest was an approved without terms and conditions.
“My examination of the account opening forms revealed that Joan Craven and Zaheeda Essa were signatories while at the same time they were director FBZ and legal advisor to the chairman of the bank respectively. By virtue of Zaheeda Essa and Joan Craven’s positions in both Hotelier and FBZ, Hotelier was at the material time classified as an insider,” Simata testified.
Simata who is banking advisor to the chief executive of Hotelier Limited said he discovered that the FBZ overdraft position of Hotelier Limited grew to the size larger than the 10 percent of the regulatory capital of the bank by the end of December 2009.
He said FNZ should have stopped lending Hotelier Limited when its debt grew to a figure exceeding 10 percent of the banking regulatory capital adding that the aggregate of the outstanding balances of the Zambian Kwacha and United States Dollar fell within the definition of a large loan as it was beyond 10 percent allowable lending threshold.