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RBZ senior division chief (bank licensing, supervision and surveillance) Mr Norman Mataruka spoke of this concern at the opening session of the 43rd edition of the Institute of Bankers of Zimbabwe Winter School.
He said the central bank had noted the re-emergence of the “2004-2005 ghosts” in banking.
His remarks come amid further revelations that there has been a worrisome increase in non-performing loans, which have risen from just over 2 percent to more than 6 percent.
In one instance, one bank was said to be sitting on 99,2 percent non-performing loans while five banks are said to be using depositors’ funds to pay salaries and overheads. The central bank has written to the banks, threatening to deal with them.
Mr Mataruka said history was repeating itself as, “we are discovering, through onsite examinations, the same problems, which we saw during the mini-banking crisis of 2004-2005”. In 2012, three financial institutions either succumbed or almost went under due to the proliferation of the same financial improprieties that threatened to decimate the banking sector. According to information gathered by the central bank through its onsite examinations, there are chronic liquidity problems within the banks, use of borrowed capital, irregular pledges of bank shares as security, concentrated shareholding and abuse of group structures.
In addition, there is gross violation of prudential lending limits, poor board and senior management oversight, persistent losses, insignificant interest income (which may lead to banks using depositors funds to fund operations) and increasing non-performing insider loans.
The RBZ has also noted poor risk management systems regarding liquidity, credit and operations, poor information management systems, abuse of depositors’ funds, poor financial reporting and accounting, failure to publish financials and violation of laws and regulations.
Mr Mataruka said in the midst of these developments in the financial sector, concerns have also arisen from the fact that the number of profitable banks has been declining rapidly. Sixteen banks made profits in March last year, dropping to 15 in June, and rising to 16 by September.
The number then rose to 18 by December 2011 but had fallen to only 15 by end of March this year. Nine banks posted losses in March 2011, compared with 10 in the current year, while the losses doubled.
The RBZ registrar of banking institutions was not explicit on whether the banking sector was stable. But he pointed out that the state of the sector was “a moving scenario” where it would either be gravitating towards stability or trudging towards a state of instability.
But according to the results of a stress test conducted in 2011, seven banks were found to be likely to face minor shocks on credit. Two risked major and moderate shocks in terms of the same factors while 11 were found to be showing minor shock in terms of liquidity.
Stress testing seeks to determine vulnerability to a variety of economic indicators.
But Mr Mataruka said the central bank learnt a number of lessons from the global financial crisis that has threatened to disintegrate the eurozone due to crises in Greece, Italy and Spain.
These include the realisation that it has not been proactive in dealing with emerging risks, not sufficiently questioning business activities of regulated institutions, not following through and lacking scepticism and not adapting to the rapidly changing business environment.
Against this background and the backdrop of limited resources, the RBZ was in the process of trying to push for legislative amendments to enhance troubled bank resolution, enhance regulation on corporate governance and internal controls and legal protection for its officers.
Online Reporter