RBZ moves to punish rogue bankers

>> Amendments approved by Government
>> Attorney-General’s office working on law

Amendments to the Banking Act are specifically designed to forestall future bank failures as monetary authorities move to restore confidence in the financial services sector, the central bank chief said last week.

Since introduction of the multiple currency regime in 2009, Royal, Genesis Investment, Trust, Interfin, Allied, AfrAsia and Capital banks have crumbled, while Tetrad is under judicial management.

RBZ Governor Dr John Mangudya told The Sunday Mail Business that the Banking Act will be tweaked to ensure those that abuse depositors’ funds will be dealt with accordingly.

“We are dealing with the futuristic by amending the Banking Act and putting in place a Credit Reference Bureau so that at the end of the day, for everyone who would have done mischief in the banking sector, there is a strong Banking Act; so that those who are going to abuse depositors’ money are punished accordingly.

“Through these measures, I am dealing with the historical problems, I am dealing with the current problems and the futuristic problems, to make sure the financial market in Zimbabwe is stable for the development of the economy,” said Dr Mangudya.

Last week, Zimbabwe National Chamber of Commerce CEO Mr Christopher Mugaga said they had engaged Finance and Economic Development Minister Patrick Chinamasa over the “serious delay” in effecting changes to the Banking Act.

ZNCC wants Government to criminalise the “flouting, short-changing” of depositors by bank directors.

Last week, the RBZ indicated that cabinet had already approved the amendments and “the Attorney-General’s office is working on the Bill”.

The amendments could be adopted before year-end. Dr Mangudya noted that contrary to some perceptions, the solution to bank failures did not lie in forcing bankers to re-model their enterprises to deposit-taking institutions as opposed to commercial banks, but in creating stable financial markets.

“Tetrad was just like Capitec Bank (of South Africa), a merchant bank, but it is under judicial management. Even Boka’s was not a commercial bank; it was a merchant bank but it closed.

“So, the Reserve Bank has put in place measures to ensure that banks will not fail going forward because wherever finance goes, enterprise follows.

“Once we have stable financial markets in Zimbabwe it means we will have enterprises and the economy growing,” explained Dr Mangudya.

Monetary authorities have created the Zimbabwe Asset Management Company, a special purpose vehicle, to acquire toxic debts from banks and has already spent US$100 million on non-performing loans.

Separately, Mr Gilbert Muponda, the chief executive officer of GMRI Capital, said last week local investors had opted for commercial banking models when the financial services sector was liberalised in the late 1990s because the subsistence of a local currency made it efficient and effective.

He, however, noted that the twin forces of dollarisation and sanctions were making this model unsustainable.

“During that time such models were efficient and effective as they offered real service and products, but dollarisation, coupled with economic sanctions, has made these models redundant because there are no deposits, savings or foreign lines of credit to support lending and credit expansion.

“Banks need to carefully watch their cost structures and marry their income to cost and avoid unsustainable overheads.

“Those struggling banks should downsize and convert to micro-finance institutions, but many resist due to reduced prestige and ego issues,” said Mr Muponda.

He also said many banks had misaligned cost-to-income ratios, having kept Zimbabwe dollar-based business models.

“The lack of deposits, savings and good creditworthy clients mean banks are like fish in a drying river.

“In addition, the local shareholders lack resources to support their operations . . . . So it remains difficult to blame directors when there hasn’t been a single conviction so there is need to improve regulatory framework and enforcement and also focus on preventative measures before loss of funds and further erosion of investor confidence in the financial sector.”