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THE Reserve Bank of Zimbabwe (RBZ) is set to engage financial institutions as part of efforts to clean up the financial services sector by “removing bad apples”.
On January 8, Allied Bank became the latest bank to surrender its banking licence to the central bank, raising fears on the health of the banking sector.
In an interview with The Sunday Mail Business, RBZ Governor Dr John Mangudya said RBZ’s intervention is meant to save the financial institutions.
“We need to find the resolution to cleanse the financial sector so that no one is incapacitated in doing business. We want to have banks which provide services. We are doing it in a sequential manner. We hope that this combination is going to resolve the problem. We are governed by principles, engagement and compromise to move forward.
“The whole idea is about removing bad apples. We are currently doing it and within 6-12 months we should be done with it. Even if banks are small, we are still concerned,” said Dr Mangudya.
The central bank Governor said a number of institutions have collapsed not only due to lack of working capital but also due to poor corporate governance.
He added that the major problems facing the financial sector were “self- feeding challenges of sluggish economic growth and non-performing loans”.
“Non-performing loans are dragging down the national economy at a level of 20 percent of total loans and advances as at 30 September 2014. NPLs definitely need to be addressed. They are contagious,” explained Dr Mangudya.
The apex bank chief said the multi-currency system created the myth that all economic challenges had disappeared and encouraged excessive risk taking by individuals and companies who borrowed more than they could reasonably repay.
He said the underlying assets that were offered as collateral security were also overvalued and banks granted loans on the basis of these artificially highly priced assets.
An economist with one of the collapsed bank, who refused to be named due to the sensitivity of the subject, believes that Government should provide a rescue package to the financial services sector.
“Our economy is smarting from a debilitating sanctions regime, which is only beginning to let up now, seeing the thawing of the Brussels, London and Harare relations.
“We hope that the USA will be following suit soon. The simple reason being that these sanctions, apart from being illegal, are patently unjustified on the merits of the claims asserted by the imperial West.
“One of the sectors that have been hard hit by sanctions in our economy is the financial services sector. This is a sector that remains the lifeblood of the economy, performing the all-important function of financial intermeditation.
“In a largely informal economy, the role of banks, small and big, becomes increasingly important in financing start-ups and other such projects that the economy vitally needs to keep going.
“Yet in the face of this glaring reality, banks continue to close every day,” he said.
Online Reporter