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The failure of two banks in a space of one month provides the basis for the fast-tracking of the Banking Act reforms. Government should immediately tighten banking laws. Several bank depositors have for the umpteenth time, been left exposed to failed banks bringing back a flood of sad memories.
Allied Bank’s licence was cancelled by the Reserve Bank of Zimbabwe on January 8 after the institution was declared to be no longer safe and sound. Tetrad Investment Bank was placed under judicial management this week. We have always argued that we should not mask errant banks, some of which are involved in nefarious activities as Reserve Bank of Zimbabwe Governor Dr John Mangudya said in his last Monetary Policy statement.
Dr Mangudya said RBZ is earnestly working on mobilising financial resources to enhance liquidity within the economy. As one of the bank’s key objectives under the back to basics strategy, the resources being mobilised would be utilised transparently and productively for the establishment and promotion of the lender of last resort function to assist solvent banks to stimulate economic development in the economy. Such funds would not be available for use by errant banks to finance their nefarious activities.
The central bank mentioned that four banking institutions, namely Metbank, Allied Bank, AfrAsia and Tetrad are facing liquidity and solvency challenges due to macro and institution specific factors.
These banks command low market shares in terms of loans (8,8 percent), assets (7,2 percent) and deposits (6,7 percent) as at June 30, 2014.
Cognisant of the need to protect the interest of depositors and promote banking sector confidence, the Reserve Bank has been engaging these institutions to come up with credible plans to turnaround their waning financial condition.
The Reserve Bank is on record that institutions should seriously consider consolidations/mergers and voluntary surrender of licenses when deemed necessary. Our worry is that two of the four banks mentioned by the RBZ as struggling have gone under. How long should we expose depositors to the threat of struggling banks which seem heading nowhere?
The collapse of the banks gives credence to efforts to reform the Banking Act. The reforms of the Banking Act should see a clause that makes it a serious offence to run a bank into abyss. This we say because some errant so-called entrepreneurs end up dragging all and sundry into the dungeon by simply engaging in wayward activities that may lead to a bank failure. We implore Government to consider criminalising owners and shareholders of failed banks. A bank is not a construction company where a shareholder uses own funds or loans. A bank collects funds from different demographic structures. Some are vendors struggling daily to make ends meet; some are pensioners while some are Small to Medium Scale enterprises. Some are civil servants while some work in the private sector. From small depositors to bulk depositors all tend to lose their hard earned cash.
We call for criminalisation of the owners and top executives in failed banks because we are aware that most banks are collapsing because of what the RBZ governor termed “institution specific factors”.
While the bank is placed under judicial management or liquidation there is the inherent inconvenience to the depositors. They cannot access their funds. This therefore, means that they cannot earn a profit on their funds locked up in the failed institution while the shareholders some of whom may have siphoned money from the institutions continue to enjoy access to the personal assets amassed through reprehensible activities. Some of these assets can be traced directly to the depositors’ funds. These are the assets that we want touched.
It has become a trend in business for shareholders and top executives upon realising that the institution is facing imminent dearth, to rush to ring fence the institution’s assets to avoid litigation. While the organisation’s assets are protected, depositors are not that lucky. Transparency will help in the fight against corruption not only in the financial services sector but across the economic spectrum.
In that regard we recommend that Government considers clearly exposing the causes behind the failure of a bank. We are of the view that the central bank be compelled to clearly spell out the “institution specific factors”.
We believe our call is justified because banks hold our monies and when one is not able to access their money they have the right to know what went wrong. Disclosure is justified under such circumstances. We are also worried that placing a bank under curatorship or judicial management is detrimental to the interests of depositors.
This has the tendency of placing the interests of the tens of thousands of depositors in the hands of an individual. This makes us very concerned.
Most importantly, judicial managers and curators will naturally consider their interests first and foremost. It is natural as they are also in business to make money. We should not pretend that they are doing community service. This is why we argue that we should not wait for a bank to fail to act.
Let us be proactive. Anyone who wants to register a bank should be aware of the consequences. We must act when a bank is being registered.
Let us nip the problem in the bud.
Online Reporter