(Published in MTimes of 30 Nov 2018)
No that the ex-boss of the BAI is back in the news in the Britam case, some people are distorting the facts to try to show that the closing down of the BAI was solely a vengeful act of destruction and that the BAI was a well-run concern facing some short-term liquidity issues without any whatsoever involvement in any so-called Ponzi schemes.
I beg to differ. As the narrative goes, it all started in 2004-2005 when the government of the day was putting some order in the insurance business and their investigations had indicated that BAI activities were in contravention of the regulatory regime and were putting at risk the entire financial sector. They had even gone so far as declaring that the insurance company was insolvent based on their findings that there was a significant deficit in the Life Fund.
Furthermore, in 2007 and 2012 , the IMF had reminded us that the issue of the insurance company with a substantial proportion of its assets invested in related companies has not been resolved. They also warned us that these issues were potentially serious for the policyholders, depositors and investors, and the weaknesses that allowed the problem to remain unresolved for so long, could result in more serious failure of a systemic nature.
They are all culprits as from 2005- starting with the tandem Mansoor-Sithanen followed by the successive finance Ministers (including the present one and the leader of the opposition) and ending up with the Governors and the whole army of regulators. They looked the other way as things were going bad day by day. Instructions from above ? What was most shocking was that despite these unsound investments, in December 2006, this financial group was granted a license under the Banking Act by the Bank of Mauritius. And interestingly, when BAI was facing increasing difficulties to stay afloat, the culprits of the previous regime amended the Banking Act to allow BAI to lend to its related companies, though well aware of the unsound activities of BAI, especially the riskiness of the staggering level of investment in related companies.
On the issue of the closure of the BAI group and revocation of Bramer Bank’s licence following persistent liquidity and regulatory capital shortages, the audacity of the decisions did not necessarily mean a better management of affairs. Instead of bursting the BAI/Bramer Bank bubble, a clear rescue plan could have been devised and implemented by the Ministry of Finance, in coordination with the Financial Services Commission, the Registrar of Companies, the Financial Reporting Council and the Bank of Mauritius. A key objective would have been to establish proper supervisory oversight and enforce corrective action for effective and prudent risk management. Under firm pressure from the supervisory institutions and Government, in December 2014 itself, (not four months later), BAI Co Ltd could have been led into a salvage operation involving new strategic investments and sound professional management. The BAI Group’s well-performing Kenyan businesses which held substantial assets could have provided a financial underpinning to strengthen BAI Co Ltd. A major source of financial haemorrhage within the BAI Group could have been urgently addressed, namely the Apollo Bramwell Hospital while some degree of public financial support could have been provided to bring health and soundness to BAI Co Ltd. It was not a vengeful act per se as there was no alternative but to close it down but it was the approach that was amateurish guided more by the urgency to settle scores.
At the end of the day, when the harm has been done, one is perfectly entitled to put the following questions: Was it all due to a vengeful act per se? Was the government’s actions guided more by the need to avert a systemic crisis and banking on a master stroke on the recoupable assets of BAI rather than on the mere urgency to settle scores? There should however be consensus on the fact that the whole approach was blatantly amateurish – and directed by people who behaved like bulls in a china shop.
In any case, BAI was a disaster waiting to happen.
