Trust Bank, Gono and Financial crisis

There has been a general simplistic view that Banks have been fuelling inflation and as such deserve to be closed or punished. One such case was that of Trust Bank which was said to have bought all bricks and cars in the country .As part of the 2003-4 Financial crisis series I will clarify some of the grey areas about the “buying all bricks” myth. Trust Bank was on the most wanted list after their reported meddling in political activities. Specifically Trust was accused of having donated more funds to the opposition and a smaller amount to ZANU .Rumors, research, investigation and intelligence all indicated that Trust donated $ 10 million to Zanu towards the ZANU congress in Masvingo in October/November 2003.Mugabe reportedly hit the roof when he learnt that whilst Trust had given ZANU $10 million they had in the same period given MDC $13 million.

Trust Holdings and all firms linked to them became enemies of ZANU which somehow believes ZANU equals the state. Every transaction attracted serious state attention as it was viewed suspiciously. It must be noted that it is the responsibility of the bank lend its customers money and have collateral of its choice for as long as it an asset of value. It does not have to be land and buildings only. The security can include moving and immovable assets under what in banking terms is generally referred to as an NGCB (Notarial General Covering Bond).This is results with the Bank having a lien over the borrowers assets which may include bricks, cars and other stocks.

Trust and motor vehicle maker Willowvale Mazda industries structured a deal wherein they would finance the importation of the car kits for Mazda motor to assemble cars and then use the assembled cars as collateral, such that in the event that if Mazda fails to pay back the loan it will take the cars. And also if a car is sold Mazda will pay back part of the loan and will only retain the profit realized. This is at times referred to as self-liquidating facility in that the facility will be paid directly from the financed asset/activity .This is not illegal and it’s a normal banking practice.

When the government and various individuals acting in the name of the state went to Mazda trying to collect the cars and then pay later, and it was not possible for them to do so because during that time inflation was increasing on daily basis, So government wanted to take all the cars and pay when the money could not buy a tyre. Because of the way the deal was done it was not feasible, when the government and certain individuals realized that it was trust bank behind this it further enhanced Trust’s reputation as anti-government and an enemy of the state.

Government officials have been fond of using state assets as their personal piggy pigs. Those with a long memory will recall the Willow gate Scandal exposed by leading journalist Geoff Nyarota involving the same Willowvale Mazda Industry .Before Trust came up with this product and service if a client needed a car and went to Willowvale Mazda industry you had to pay for your car in full, in advance and it will be delivered to you in six months .What it means is that they will use your money to buy the kits wait for them and then assemble your car ,the deal was done by trust bank. Imagine how many jobs were saved. Obviously Trust Bank made profits from this transaction and that’s what banks are supposed to do.

The same picture was repeated at Will dale Bricks. These companies were facing viability problems and could not finance their stocks due to rampant hyper inflation and it required innovative and risk taking banks to put their capital on the line. So if a bank took a risk to finance brick stocks and inventory it would be normal for them to impose some conditions that made it possible to refinance new stocks. It doesn’t make much business or economic sense to sell stocks at prices that would be inadequate to re-finance new stocks. Any such model will lead to shortages and results in empty shelves. The real problem is there are certain Government linked individuals who would have just wanted to get bricks on credit and cars on credit then delay payments and only repay when this money can’t replace the stocks.

Zimbabwe has always needed outside Forex for it balance of payment support. This came from various sources including donors, aid, and direct foreign investment, supra-national organizations such as World Bank, IFC and exports. These started to dry up about 8 years ago .As Forex became more scarce the black market developed. The Banking industry responded with various products that included forward contracts, swaps and other Forex linked derivatives. This allowed industry to access the Forex at market determined rates.This is so because derivatives allow a premium or discount to factor in the scarcity, the volatility and the uncertainty. Using such instruments the banking system was able to efficiently allocate the scarce resource without letting the exchange rate get out of control. This way the market remained more formalized as banks acted as agents of the RBZ and the RBZ didn’t have to directly release trillions directly to its runners.


As a way to engineer Trust Bank fall Dr Gono and his RBZ team started to make unheard of goal post shifting maneuvers .Firstly the RBZ owed Trust Bank approximately $US 20 million. Trust had sourced this money from its exporting clients at parallel market rates .Dr Gono then unilaterally said the RBZ will repay the Trust Loan in Zimbabwe dollars at the official rate. Trust tried to resist this to no avail. Then a smokescreen was conveniently created that Trust was into buying bricks and cars and all sorts of other-non banking activities. This was merely a smokescreen to cover up the RBZ refusal pay back the loan in either US$ OR the ruling parrarel market rate.

Prior to December 2003 this was the norm. The market players would transact at the going market rates as determined by the forward, swap and other derivative market instruments. These instruments were critical in the price discovery process as they factored most of the known risk variables .This kept the market reasonably stable and allowed RBZ, government and industry to orderly access whatever Forex available. Then suddenly in December 2003 the biggest player in the market decided to unilaterally change pre-agreed rates in all forward, swap and other derivative contracts it had obligations.

This spelt a disaster for the Banking sector. This is so because even if an institution was not a direct participant in the forward or swap contracts if it had exposure to any player who had a contract that was unilaterally re-priced that spelt enough trouble to cause panic which would then trigger a bank run when coupled with other factors. The unilateral re-pricing of contracts ( i.e. changing exchange rates pre-agreed) was and is ruinous to who ever is holding the contract .In short this meant certain institutions were unable to pay for their obligations as their expected cash flow from forward, swap and other derivative contracts were dramatically reduced by the key participant in the Forex market.


It is clear banks have been left with no option but to improvise to remain afloat. They deserve credit for that. They can’t make loans out as the clients have a greater risk of default due to hostile environment. In addition the central bank has Forex runners who by-pass the banks. They can’t trade in Forex as this has all been centralized and generally monopolized to such an extent it’s now a preserve of the central bank. This indicates the need to look beyond individual banks but rather the whole operating environment, regulations and various policy shifts which happen so constantly such that its almost impossible to assess their benefits.

The central bank is now competing with the banks and as such banks have been crowded out of the traditional areas such as provision of market determined loans and Forex transactions. Instead of being the lender of last resort the RBZ has become the lender of first choice. This is partially responsible for eroding the confidence in the banking system and undermining the sector. Obviously there are always scapegoats to heap all blame on and divert public anger and attention .The banking sector has readily provided scapegoats for the last 5 years .It is for this reason that public and parliamentary hearings may help to clarify the nature of the problems facing the country.

Gilbert Muponda is a Canada based entrepreneur. He can be contacted gilbert@gilbertmuponda.com .