Leaked Grant Thorton report reveals beneficiaries of BML’s risky pre-2008 lending

Additional reporting by JJ Robinson

A leaked draft of a report into the Bank of Maldives’ (BML) lending practices prior to 2008 has identified those behind potentially destabilising breaches of both BML and Maldives Monetary Authority (MMA) guidelines.

The asset recovery investigation by forensic accounting company Grant Thornton, drawing on the 2008 Attorney General’s report on BML, concludes that it would have been “impossible for the [BML] board to not have been influenced” in the granting of significant exposures in the form of credit to a select coterie of Gayoom-era affiliates.

The document reveals well-connected individuals bypassing BML rules regarding the handling of non-performing assets, with a number of large companies belonging to politically-active businessmen continuing to receive credit despite failing to satisfactorily meet previous repayment obligations.

“The large exposures that BML held, were in the main, due to members of the board or their relatives,” the report found.

“Due to the fact that the largest exposures of the bank were from Board members and/or their families, it would be unrealistic for the Board to provide any clear independent review of the banking facilities provided, and would in [our] view form conflict of interest issues for those Board Members involved,” it added.

The report names a number of individuals and business groups who benefitted from the state bank’s loan and overdraft facilities towards the end of Maumoon Abdul Gayoom’s 30 year tenure as head of state.

The government was handed a US$10million (MVR 154.2 million) invoice from Grant Thornton last year in what former Foreign Minister Dr Ahmed Shaheed told Minivan News was a penalty fee for stopping the investigation initiated under Gayoom’s successor Mohamed Nasheed.

Prior to the alleged request from the current government to halt the investigation, Grant Thornton had uncovered evidence of an alleged US$800 million oil trade involving former head of the State Trading Organisation (STO) and current presidential hopeful Abdulla Yameen. Shaheed alleged that the accounting firm was contracted to receive a percentage of any assets recovered as a result of its work.

The private parties named in Grant Thorton’s BML assessment include the Sun Group, Lily Group, Sultans of the Seas, VA Group, Afeef Group, Villa Group, Thasmeen Ali, VB Group, and Rainbow.

“Many of the above parties benefited from loans that were used to assist in purchasing leases for resorts, related tourism businesses etc, of which would not have been achieved without the connections held by certain individuals,” the report said.

The report also makes particular mention of the role of Ibrahim Gasim, both Finance Minister and non-executive BML board member at the time of the majority of cases documented within the Grant Thornton report.

Gasim, who is also standing as the Jumhoree Party (JP) presidential candidate in next month’s election, would have been responsible for the appointment of the majority of the BML board at this time.

Grant Thornton’s report revealed that Gasim’s Villa Group had been loaned MVR481,299,571 (US$37,601,520) as of October 31st 2008, representing 32.4 percent of the bank’s entire capital.

This represents one of a number of examples of such exposure featured in the report, despite the Bank’s acquiescence in 2006 to an MMA request to reduce any credit guaranteed to individual or related group borrowers to 30 percent of overall capital.

After repeated lobbying, the MMA increased this amount to 40 percent. Grant Thornton suggested that this extension request was due to the fact that a number of the groups mentioned in its report were already exceeding the original lower limit.

In rejecting one of BML’s requests for an increased credit exposure limit, the MMA wrote that “such concentration of credit is far in excess of the legal lending limits of the bank and it could seriously threaten the bank’s position, and the stability of the whole financial sector,” the leaked document stated.

Even with this increase, Sun Group is reported to have exceeded this limit after January 2008, with loans and overdraft facilities reaching  MVR 607,345,442 (US$46,879,400) as of 31 October 2008.

“This amounted to 40.8 percent of the Bank’s capital as at 31 October 2008,” the report observed.

Loans and overdraft facilities provided to Afeef Group totalled MVR 245,123,414 (US$19,150,266) as of October 31, 2008 – approximately 16.5 percent of BML’s total capital at the time.

Sun Group Chairman and majority shareholder Ahmed Shiyam’s Maldivian Development Alliance (MDA) meanwhile this week announced its decision to form a coalition the Progressive Party of Maldives (PPM), headed by former President Gayoom.

Alterations to BML’s internal loan approval mechanisms for board members in May 2007 resulted in the bypassing of the bank’s Credit Committee.

“This effectively meant that those Board Members that had applied for credit facilities were approving their own loans,” stated the draft report.

BML board members complicit in self-approving their own credit lines include Mohamed Ahmed Didi (Sultans Group shareholder), Ahmed Hamza (Director of the VA Group), and Gasim (Chairman of the Villa Group).

Director Mohamed Adil also features prominently, being cited in one particular example of a board meeting in which he approved the re-financing of the Sultan Group’s debt at the same time as being the group’s major director/shareholder.

BML’s recovery

In the intervening years, BML wrote off multiple toxic non-performing assets and returned to profitability, largely by outright ceasing to pay dividends to shareholders for almost five years.

The Bank’s board approved a MVR 50 million (US$3.23 million) interim dividend to shareholders in July 2013, the first since 2008.

“This marks the end of a painful and challenging journey that began in 2009 when the bank reported record level non-performing loans. However, in recent years Bank of Maldives has reported record level earnings and operating profit and the company returned to profit in 2012,” read a statement from BML.

BML’s former CEO Peter Horton, a UK banker appointed in February 2011 with extensive experience tackling distressed portfolios and problem lending across Africa as part of Barclay’s corporate turnaround team, resigned in August 2013 to head up Bermuda Commercial Bank.

“The profitability and dividend payment will be sustainable going forward,” said Horton in the bank’s July statement. “This is an interim dividend and at MVR 9.29 [a share] for the half year places us in a strong position to pay the highest full year dividend in the Bank’s recent history at year end”.

Download the leaked GT report


Maldives donor conference ‘not a begging bowl’ says Shaheed

The IV Maldives Partnership Forum, or donor conference, is to be held on the 28-29 March at Bandos Resort and Spa will focus on attracting foreign investment rather than donations, said Foreign Minister Dr Ahmed Shaheed.

“You can do business here and make a profit,” he claimed, while still helping the country improve its infrastructure and economy.

“We don’t want to become mendicant people with a bowl begging for some money. We have interests to promote here.”

“A lot of countries are required by the UN system to focus their assistance on certain countries,” he explained, mainly those in the Least Developed Countries (LDC) list.

Until the Maldives graduates from the LDC list at the end of 2010, other countries with higher GDPs are encouraged by the UN to offer investment and concessions to the Maldives.

“The [donor countries] have their own internal policy requirements to fulfil by focusing on countries who are vulnerable, like island states,” explains Dr Shaheed.

“At the same time,” he adds, “there are those who are keen to promote certain causes or issues, such as human rights. They want certain opportunities to promote those issues.”

Dr Shaheed added that “a lot of countries want to invest in a stable Maldives. A stable, prosperous Maldives is a market. An unstable, impoverished Maldives is a liability.”

The invitations “are being sent out” and ministers are travelling to world capitals to begin lobbying, including Beijing, Seoul, Tokyo, Kuwait City, Riyadh and Doha.

The Forum will address five key areas:

Macro-economic Stability

For there to be macro-economic stability in the country, the government “hopes the parliament, when they come back, as a first order of business, will look at the taxation package and actually pass it.”

The government is currently working in partnership with the International Monetary Fund (IMF) on the economic development programme. Dr Shaheed says “it is very important that we make that programme succeed.”

He added that for the IMF programme to work, it is crucial for the taxation bill to be passed.

Public Reform

“Again this is linked to the IMF program,” says Dr Shaheed, “because we need to cut down expenditure.”

Part of this public reform is the very controversial policy of cutting down the number of public servants.

“We won’t just sack them,” he says. “We are going to restructure some of the government bodies into complex entities, like the media sector.”

There will also be some retirement packages available, as well as study and training packages.

Governance and Democratisation

“This is a very broad area,” Shaheed explained. “We need an oriented look at division, and how to increase capacity [in government agencies].”

All areas of government must be studied extensively to make sure they “function better”.

Climate Change Adaptation

Dr Shaheed said the most important issues concerning climate change are renewable energy and eco-degradation (for example, waste management). It also includes building “more sea walls, jetties and harbours.”

Social Development

The government will be “targeting the vulnerable of the population, like children, young girls, and old people” as the main recipients of the benefits of social development.

It will also deal with the health and education sectors, which it hopes to improve.

Past Forums

Dr Shaheed said the first forum, held in 2007, “was a time when a lot of questions were asked about where the Maldives was headed.”

The focus was on the reform program, which he claimed was “a very good forum to bring the donor community, the recipients, and policy makers together on the same page.”

For this year’s forum, the minister says “we have projects in place, so we have a much clearer idea of what we’re going to do.”