Govt mulls fund for bank debts

reported high bank charges and punitive interest on loans.
At the same time, efforts are being pursued to free the central bank from its huge debt and enable it to recapitalise.
Finance Minister Tendai Biti said impending legislation was designed to strengthen the banks, which were said to be “sitting on high levels of non-performing loans”.
Minister Biti spoke on Monday during a Press briefing on the two-day high-level economic forum starting in Victoria Falls today and progress thus far in the 2012 National Population Census.
“Important is the issue of creating a fund that will deal with the non-performing assets said to be  sitting on the books of commercial banks,” he said..
“As you are aware, the majority of our commercial banks are sitting on high levels of non-performing loans. So, we are on the verge of concluding an Act of Parliament that, through private means, will take over the debt to allow stronger banks to remain.”
Companies and individuals have been struggling to repay debts due to punitive interest rates levied by most of the banks.
In an interview at the weekend, central bank governor Dr Gideon Gono said the banks had until September 1 to adjust to a “reasonable and sustainable framework of bank and other charges which reflect adherence to best international standards and are not exploitative”.
“The ordinary man and woman in the street, the civil servant out there and businesses have suffered enough and it’s high time our ‘failed moral suasion’ approach is twitched a gear up without necessarily introducing legislation to govern bank charges.
“Legislation is difficult to deal with, once it’s there and this is the message we will be taking to the bankers,” said Dr Gono.
Instead, the central bank was considering signing a memorandum of understanding with banks to make charges and interest on loans “a focus area” for the RBZ’s banking supervision and surveillance teams.
Furthermore, there were plans to establish a banking Ombudsman to handle customer grievances on time.
The Ombudsman would be funded by the banks themselves.
Minister Biti said Government was also working on resolving the central bank’s indebtedness, which has hindered its operations.
“We are concluding an RBZ Debt Restructuring Bill that will liberate the bank’s (RBZ) balance sheet of the US$1,1 billion debt.
“Once we have dissected the RBZ balance sheet, which, in fact, is in a state of insolvency, it will be easier to recapitalise the central bank,
“You cannot do that with a huge debt of US$1,1 billion, sitting on the books of the central bank,” said Minister Biti.
In doing this, Government would use the proceeds from the disposal of some RBZ assets acquired when the bank carried out quasi-fiscal activities.
Through its investments arm, Financial Trust of Zimbabwe, the central bank had shares in such companies as Homelink, Cairns, Tractive Power Holdings and Tuli Mine, which are now being sold to repay its debts.
Due to the debt overhang, the central bank has not been able to perform some of its traditional roles such as lender-of-last resort functions.
As such, there has not been a fundamental basis for setting of interest rates and the interbank market, which resulted in the lending rate spike.
Government also said it would not sit on its laurels while banks fleeced companies and individuals through punitive interest rates.
Minister Biti said he was concerned at the practice by banks, which were earning most of their income from fees and commissions.
Dr Gono said the central bank was also concerned with the rate at which depositors’ properties were being attached by banks.
However, he said it was not practical to expect banks to refund bank charges that depositors had been made to pay since dollarisation.
“Calls for refunds can be and are disruptive of current stability in the banking sector and lead to unintended consequences on the welfare of banks. We would not support those moves unless they are voluntary between individual customers and their banks for whatever valid reasons,” said Dr Gono.