Shelter Afrique MD resigns as board adopts report faulting him over bad loans
What you need to know:
Mr Mugerwa's exit comes after Tuesday’s board meeting where directors adopted a forensic audit report that fingered him over subprime lending and creative accounting.
The Deloitte forensic audit report had recommended disciplinary action against Mr Mugerwa on grounds of conflict of interest, staff harassment, and blowing up $7,845 (Sh784,500) in advances he couldn’t account for.
Femi Adewole, who has been serving as director in charge of business development, has been appointed acting managing director pending recruitment of a new boss.
Shelter Afrique managing director James Mugerwa has resigned from office, a day after board members adopted a forensic audit report implicating him in financial impropriety.
Mr Mugerwa’s exit comes in the wake of a Deloitte report affirming allegations of lax lending practices and accounts manipulation at the housing lender.
“Mr Mugerwa offered to resign in order to pursue other interests. The Board wishes Mr Mugerwa every success in his future endeavours,” said Shelter Afrique chairman Jean Paul Missi in a statement.
Femi Adewole, who has been serving as director in charge of business development, has been appointed acting managing director pending recruitment of a new boss.
Mr Mugerwa took office in August 2014 after the acrimonious exit of Alassane Ba.
The undercurrents at Shelter Afrique burst to the fore in September last year when the firm’s head of finance Godfrey Waweru blew the whistle via an email on the financial health of the mortgage lender.
Deloitte was then called in to probe the allegations and prepared a report. “The board was mandated to implement the report completely,” Shelter Afrique said after the Tuesday crisis meeting.
He accused Mr Mugerwa of dishing out sub-prime mortgages resulting in 59 per cent of Shelter Afrique’s $246.3 million (Sh24.63 billion) loan book being non-performing as at February 2016.
Shelter Afrique was also accused of restructuring overdue loans by rescheduling such facilities to appear as if they are performing, thereby suppressing the volume of toxic mortgages, said the whistleblower.
Deloitte recommended “disciplinary action against all members of the loans committee who were involved in making irregular restructuring and provisioning decisions for the aforementioned loans.”
The allegations saw ratings agency Moody’s downgrade Shelter Afrique’s long-term issuer rating from Ba1 to Ba3 in November, and placed it on review for further downgrade.
“Shelter Afrique has experienced a persistent deterioration across most of its credit fundamentals, which appear to reflect structural, rather than cyclical drivers,” said Rita Babihuga, assistant vice-president at Moody’s.
A growing mountain of non-performing mortgages had forced Shelter Afrique to seize properties of projects not serving their loans under an “asset swap programme” and has classified these properties as “held for sale.”
The list of dud loans at Shelter Afrique include those advanced to Taj Mall, Translakes Estate in Kisumu, Eden Beach Resort in Shanzu, and Oakpark Properties’ Pine City in Athi River. Consequently, Shelter Afrique has seized 11 apartments at Eden Beach, as well as 17 houses and land belonging to Oak Park.
“Shelter Afrique does not have a policy that guides loans asset swaps. From correspondence reviews, loans asset swaps are not a conventional way of managing NPLs,” reads the Deloitte report seen by Business Daily.
The forensic audit also identified a conflict of interest between Mr Mugerwa and Amana Capital boss Hardy Pemhiwa, who is a director at Shelter Afrique.
Mr Mugerwa is said to have approached Mr Pemhiwa’s firm in December 2014 to manage funds on behalf of Shelter Afrique, says the Deloitte report. Amana Capital received Sh500 million to place at Chase Bank for a period of three months.
“The board should consider taking disciplinary action against Mr Mugerwa for breaching the Shelter Afrique procurement policy,” says one of the Deloitte recommendations.
The forensic audit also found that Mr Mugerwa had blown up $7,845 (Sh784,500) in advances he could not account for.
The outgoing Managing Director was also accused of staff harassment and the report recommends “re-assessing Ms Wendy Kirui’s contract,” who was an assistant administration officer.
“The termination was contrary to the recommendation of the disciplinary committee that she be issued with a warning letter,” said Deloitte.
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