THE Reserve Bank of Zimbabwe (RBZ) has set stringent regulations that bar directors or senior managers of failed banks from sitting on the boards of financial institutions.
The new guidelines, which came into effect yesterday, are contained in the Bank Licensing, Supervision and Surveillance document on Corporate Governance.
It means, for instance, that directors of the liquidated Century Discount House, which was bought by the collapsed ENG, can no longer be directors of any financial institution. Also affected are directors who once worked for United Merchant Bank.
“Banking institutions must follow good corporate governance principles, which provide for the disqualification of a director or senior manager who has been involved in the directorship or management of a failed banking institution and or bank holding company,” the document says.
“Unless that person shows to the satisfaction of the Reserve Bank of Zimbabwe that the person was not responsible for the insolvency, liquidation, composition with creditors, bankruptcy or the arrangement with creditors or other action with similar effect in Zimbabwe or elsewhere.”
The document was given to banking chiefs by Reserve Bank governor Gideon Gono at a meeting on Monday. The meeting also discussed problems of cash availability and the status of the banking sector ahead of yesterday’s recapitalisation deadline.
In a 37-page document, the central bank said with effect from yesterday every banking institution would set out its policy on insider loans and intra-group transactions to comply with the Banking Act.
The loan policy comes in the wake of revelations that senior bank officials contributed to the demise of their institutions by allocating themselves massive loans without approval.
It is thought that irregular inside loans were one of the major causes of the collapse of Barbican and Royal banks which have since been ring fenced through a curatorship. Intermarket also suffered the same fate when its former chairman Nicholas Vingirai allegedly allocated himself more than $90 billion in loans.
Trust Bank, which was placed under curatorship last week, is also battling to come out of the red after its former managers abused internal loan facilities.
The new policy forces banks to make disclosures on any lending in connection with any related interest.
A fortnight ago, the International Monetary Fund (IMF) raised concerns on the stability of the banking system in Zimbabwe, which it said was risky. That was before Trust Bank was suddenly placed under curatorship.
The local banking industry has been severely affected by the problems of poor corporate governance.
The IMF said there was need to strengthen financial sector supervision, and particularly with regard to capital adequacy.
Under the new regulations, every board member is now required to attend at least 75% of board meetings of a banking institution.
“At its Annual General Meeting, each banking institution is required to review the suitability of a non-executive director who has failed to comply with this 75% attendance rule, without valid reason. Attendances shall be disclosed in the annual report.”
Under the new system, the board is expected to meet at least once every quarter to deliberate on the performance of the bank and provide policy direction.
“Although directors may delegate certain authority to senior officers, they are ultimately accountable for the banking institution’s operations.”
The regulations also state that the chief executive of a bank will be responsible for its day to day running, adding that his absence must be approved by the central bank.
“A banking institution is required to inform the Reserve Bank of Zimbabwe the person who will be directly responsible for the overall running of the institution when the chief executive officer is unavailable, on leave or otherwise absent,” the report said.
“The person nominated should be fully acquainted with the affairs of the banking institution, and should be able to act promptly, with authority, on matters affecting the banking institution. The delegation of responsibilities to several persons, with no single person as the coordinator with the institution, should be avoided.”
The report said remuneration of directors and the chief executive shall not be out of line with the nature and size of opeations of a banking institution.
“The directors and chief executive should not avail themselves of unreasonably bountiful remuneration, with execessive bonuses and fringe benefits relative to the profits and operations of the bainking institution,” RBZ said.